Consumer Spending Brightens Economic Outlook

By Lucia Mutikani

WASHINGTON -- U.S. consumer spending posted its largest increase in five months in November, the latest suggestion of sustained strength in the economy as the year winds down.

The Commerce Department said Monday consumer spending rose 0.5 percent after advancing by a revised 0.4 percent in October. It was the seventh straight month of increases and matched economist expectations.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, was previously reported to have increased 0.3 percent in October.

When adjusted for inflation, consumer spending increased 0.5 percent in November after rising 0.4 percent in October. November's increase in so-called real consumer spending was the largest since February 2012.

This indicates that consumer spending in the fourth quarter probably accelerated from the third quarter's 2 percent annual rate. Spending is being bolstered by improving household balance sheets, thanks to a rising stock market and house prices.

The report added to other upbeat data, such as employment and industrial production, %VIRTUAL-article-sponsoredlinks%in suggesting that the economy retained some of its third-quarter momentum in the lead-up to the end of the year and was poised for faster growth in 2014.

It also fits in with Federal Reserve's upbeat view on the economy, which prompted the U.S. central bank to announce last week that it would start reducing its monthly bond purchases from January.

The economy grew at a 4.1 percent clip in the July-September period, the fastest pace in nearly two years, after expanding at a 2.5 percent rate in the second quarter.

International Monetary Fund managing director Christine Lagarde said Sunday the international lender would raise its growth forecast for the world's largest economy next year. The IMF forecast in October that the U.S. economy would expand 2.6 percent in 2014.

Despite the signs of strength in the economy, inflation remains benign. A price index for consumer spending was unchanged for a second straight month.

Over the past 12 months, prices rose 0.9 percent. The index had gained 0.7 percent in October.

Excluding food and energy, the price index for consumer spending rose 0.1 percent, rising by the same margin for a fifth straight month. Core prices were up 1.1 percent from a year ago, after rising by the same margin in October.

Both inflation measures continue to trend below the Fed's 2 percent target, which would suggest the U.S. central bank could keep interest rates near zero for a while, even as it reduces its monthly bond purchases.

Income rose 0.2 percent, rebounding from a 0.1 percent drop in October. With spending outpacing income growth, the saving rate -- the percentage of disposable income households are socking away -- fell to a nine-month low of 4.2 percent.