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.
6 Popular Tax Breaks That Could Disappear in 2014
Consumer Spending Brightens Economic Outlook
Usually, if borrowers have part of their debt written off or forgiven, they have to treat that amount as taxable income. But in the aftermath of the housing market's implosion, homeowners who defaulted on their mortgages and had their bank write off or forgive part or all of their loans weren't required to claim the forgiven amount as income. The Mortgage Forgiveness Debt Relief Act of 2007, which created this provision, has been extended before, but now, with home prices recovering somewhat, the incentive to preserve this provision is starting to fade. That makes it more likely that the mortgage-debt forgiveness provisions might not get renewed for 2014.
Federal tax law has allowed taxpayers to deduct state and local income taxes for years, but for the 57 million people who live in states that don't charge income tax, those provisions didn't provide any relief. That changed in 2004, when lawmakers allowed taxpayers to choose instead to take a similar deduction for sales taxes. The provision, which was originally slated to expire at the end of 2007, has been repeatedly extended by Congress. Over the years, it has provided $16.4 billion in deductions to affected taxpayers.
Teachers from kindergarten to high school are allowed to deduct up to $250 for money they spend buying supplies for their classrooms. This deduction's available even to those who don't itemize, making it more valuable than most deductions. According to figures from The Tax Institute at H&R Block, more than 3.6 million teachers took advantage of this provision in 2010 to deduct $915 million in expenses. This deduction has been extended regularly ever since its initially scheduled expiration in 2005, so, even though it's on the chopping block again, it's a pretty good bet that lawmakers will let the tax break survive into 2014.
These provisions allow certain taxpayers to deduct between $2,000 and $4,000 of qualified educational costs. This provision was also retroactively reinstated for 2012 at the beginning of this year. The difference, though, is that other tax breaks also exist for educational expenses, including the Lifetime Learning Credit and the American Opportunity Credit. (You have to pick either the tuition and fees deduction, or one of the two education credits. You're not allowed to double-dip.) Those tax credits makes it less crucial to extend the tuition deduction, although it's still a better deal for many people: The Tax Institute at H&R Block says that 2 million taxpayers used it to write off $4.36 billion in expenses in 2010.
Since 2006, taxpayers could claim a credit on certain expenses for remodeling their homes to make them more energy efficient. Currently, the maximum lifetime credit amount is $500, but amounts were higher in the past, and more than 43.5 million taxpayers have claimed an average of more than $765 using the credit.
Congress commonly waits until late in the year to extend expiring tax provisions like these, as well as others not mentioned above, such as the exemption for charitable IRA distributions, deductions for mortgage insurance premiums, and the higher immediate write-off amounts for small-business equipment purchases.
Lawmakers often use what's known as a tax-extenders bill to pass all the extensions in a single package. Earlier this month, WOTC Coalition President Paul Suplizio said that a seemingly unrelated Medicare-payments bill was probably the first step toward a year-end tax extenders bill that would cover expiring tax breaks like these.
And, just as millions of Americans procrastinate until April 15 to file their taxes, we can expect lawmakers to wait until Dec. 31 -- or beyond -- to decide the fate of these tax breaks.