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Consumer spending tepid in November

U.S. consumer spending rose less than expected in November as tepid income growth put a squeeze on households.
/ Source: Reuters

U.S. consumer spending rose less than expected in November as tepid income growth put a squeeze on households, according to a government report on Friday that suggested slowing momentum in demand.

But new orders for manufactured goods jumped last month on demand for aircraft, a separate report said.

The Commerce Department said consumer spending ticked up 0.1 percent after rising by the same margin in October.

Economists polled by Reuters had expected spending, which accounts for two-thirds of U.S. economic activity, to rise 0.3 percent last month.

"It's suggesting some softness in the consumer sector. We are not in a recession, but growth is not especially strong either. We did get the extension on the payroll tax cut, which is going to help the consumer outlook in the first half of next year. The market has largely priced that in already," said Scott Brown, chief economist for Raymond James.

When adjusted for inflation, spending rose 0.2 percent last month after a similar gain in October. The government on Thursday revised down third-quarter consumer spending growth to a 1.7 percent annual pace from 2.3 percent because of a slump in spending at hospitals.

November's anemic consumer spending is unlikely to change views that economic growth in the fourth could top a 3 percent pace, accelerating from the July-September period's 1.8 percent rate.

Income ticked up 0.1 percent last month, the weakest reading since August, after increasing 0.4 percent in October. Last month's increase was below economists' expectations for a 0.2 percent rise.

Taking inflation into account, disposable income was flat after rising 0.3 percent in October.

The saving rate dipped to 3.5 percent last month from 3.6 percent in October. Savings slowed to annual rate of $400.9 billion from $419.1 billion the prior month.

The report showed subsiding inflation pressures, which should help to support spending.

A price index for personal spending was flat last month after falling 0.1 percent in October. In the 12 months through November, the PCE index was up 2.5 percent, the smallest rise since April. That followed a 2.7 percent increase in October.

A core inflation measure, which strips out food and energy costs, edged up 0.1 percent last month after a similar gain in October. In the 12 months through November, core PCE rose 1.7 percent after increasing 1.7 percent in September.

The Federal Reserve would like this measure close to 2 percent.

Meanwhile, new orders for U.S. manufactured good soared in November on strong demand for aircraft, but a gauge of business spending plans fell for a second month, suggesting a cooling in investment.

Durable goods orders jumped 3.8 percent after being flat in October, the Commerce Department said on Friday. Economists had forecast orders rising 2 percent from a previously reported 0.5 percent fall.

Durable goods range from toasters to big-ticket items such as aircraft which are meant to last three years and more.

Excluding transportation, orders rose 0.3 percent after rising 1.5 percent in October. Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, fell 1.2 percent.

The category had dropped 0.9 percent in October. Economists' had expected a 1.0 percent gain last month.

Business spending, which has helped the economy to recover from the 2007-09 recession, is slowing, but analysts still expect corporations holding about $2 trillion in cash to continue investing in capital.