Video: Last-minute shoppers hit stores

updated 12/21/2007 10:31:39 AM ET 2007-12-21T15:31:39

Consumers put aside worries about slumping home sales and soaring gasoline prices and headed to the malls in November, pushing spending up by the largest amount in 3½ years.

The Commerce Department reported Friday that consumer spending surged by 1.1 percent last month, nearly triple the October gain. The gain reflected various promotional efforts by retailers such as heavy discounting and longer store hours at the start of the holiday shopping season.

The November advance was the biggest one-month jump since a 1.2 percent rise in May 2004 and was significantly above the 0.7 percent analysts had expected. Incomes were also up last month, rising by 0.4 percent, double the October increase but slightly below the advance that had been expected.

An inflation gauge tied to spending showed a 0.6 percent increase in November, the biggest jump in more than two years, reflecting last month’s big surge in gasoline prices. Excluding energy and food, prices were up 0.2 percent. Core inflation is up 2.2 percent over the past 12 months, above the upper range of the Federal Reserve’s comfort zone of 1 percent to 2 percent.

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The big jump in spending came at a critical time for retailers — the start of the all-important holiday shopping season. But there have been more recent signs that sales slowed in December.

Consumer spending is closely watched because it accounts for two-thirds of total economic activity. Many economists believe that overall economic growth will be at a barely discernible rate of 1 percent in the current quarter, as the country struggles with the fallout from the housing downturn and a spreading credit crisis that has made bank loans harder to get for individuals and businesses.

While the risks of a recession have risen, the Federal Reserve is fighting to avert a full-blown downturn by cutting interest rates. It has not been as aggressive as financial markets want, however, because of Fed worries about inflation pressures.

The 1.1 percent rise in consumer spending followed a 0.4 percent rise in October. Excluding the effects of inflation, spending would have risen by 0.5 percent, the best showing for inflation-adjusted spending in 11 months.

After-tax incomes were up 0.3 percent in November, but after adjusting for inflation, incomes actually fell by 0.3 percent after a 0.2 percent drop in October. Democratic presidential candidates, hoping to make the economy an issue in next year’s contest, have been stressing the weak gains in incomes as an example of failed Republican policies.

With spending rising at a faster rate than savings, the nation’s savings rate dipped into negative territory in November at 0.5 percent. That meant that households spent all of their incomes and either dipped into savings or borrowed to finance the higher level of spending last month.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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