Households splurged on new cars, appliances, televisions and clothing as spending climbed 0.6 percent in November, beating the median forecast of economists surveyed by Bloomberg, according to figures from the Commerce Department issued today in Washington. The economy grew at the fastest pace in 11 years, another report showed.
“We have very solid momentum entering 2015,” said Michael Gapen, the New York-based chief U.S. economist for Barclays Plc. “Labor markets are doing better, the consumer has a more favorable outlook for the economy and their own incomes, and they’re acting on it.”
The biggest employment gains since 1999 and the lowest gasoline prices in five years are giving Americans reason to believe the economic expansion is finally shaking off t
he vestiges of the recession. A sustained pickup in growth would help stabilize a global economy struggling to find ballast as Europe flounders and emerging markets cool.
Gross domestic product grew at a 5 percent annualized rate from July through September, the biggest advance since the third quarter of 2003 and up from a previously estimated 3.9 percent, according to revised Commerce Department figures.
The highest price for gasoline in the lower 48 states among the markets surveyed was on... Read More
Bloomberg Survey
The November increase in spending followed a 0.3 percent October gain that was larger than previously estimated, according to the Commerce Department. The median forecast of 76 economists in a Bloomberg survey called for a 0.5 percent rise.The report also showed incomes advanced 0.4 percent last month, the most since June, paced by a bigger gain in wages and salaries as hiring picked up.
Household purchases, which account for almost 70 percent of the economy, rose at a 3.2 percent annual pace in the third quarter, compared with a previously reported 2.2 percent, today’s GDP report showed. The revisions reflected stronger spending on health care, recreation and financial services than previously estimated. Outlays on durable and non-durable goods were also revised up.
“Consumer spending in particular looks like it’s on a pretty good track right now,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “Energy prices are down, labor markets have good momentum, so we’re in pretty good shape heading into 2015.”
Projected Acceleration
Economists at Morgan Stanley in New York were among those projecting the spending gain this quarter will exceed 4 percent, which would mark the strongest quarter since at least 2010.The Obama administration lauded the recent string of better-than-projected data as a sign that the improvement goes beyond the drop in fuel costs.
“I don’t think that the progress we’ve seen in the economic indicators over the last few quarters are directly a result of oil prices being low,” Treasury Secretary Jacob J. Lew, said today on American Public Media’s “Marketplace” radio program. “It’s a result of core strength.”
Today’s figures for November consumer spending showed broad-based gains in purchases.
Purchases of durable goods, including automobiles, climbed 2.3 percent after adjusting for inflation, following a 0.4 percent advance.
Auto Sales
Demand for automobiles remains a bright spot. Cars and light trucks sold at a 17.1 million annualized rate in November, according to data from Ward’s Automotive Group. In August, the rate was 17.5 million, the most since January 2006.“The average American consumer has a little more spending money at this gas rate than they had before,” Thomas Folliard, chief executive officer of CarMax Inc. (KMX), a seller of used automobiles, said on a Dec. 19 earnings conference call with analysts. “That’s a positive for people’s outlook.”
Spending on non-durable goods rose 1 percent after adjusting for inflation, the most since September 2013, reflecting gains at clothing retailers and service stations, today’s report showed. That means that cheaper gasoline is prompting Americans to drive more.
It’s also freeing up money for people to spend elsewhere. Regular gasoline at the pump sold at an average $2.38 a gallon as of Dec. 22, down $1.32 from a high this year in April, according to AAA, the biggest U.S. auto group.
More Income
Disposable income, or the money left over after taxes, climbed 0.5 percent in November from the prior month after adjusting for inflation, the most since March. It was up 2.9 percent over the past 12 months, the biggest year-to-year gain since December 2012.Bigger paychecks are brightening households’ moods. The Thomson Reuters/University of Michigan final consumer sentiment index for December rose to 93.6, the highest since January 2007, from 88.8 in November, according to data issued today.
The third-quarter GDP report also showed business investment was revised up across the board, with bigger gains reported for spending on construction projects, equipment and intellectual property, which includes software and research and development.
Another report today showed similar advances will be difficult to match this quarter. Orders for durable goods, which are those meant to last at least three years, unexpectedly dropped in November, according to Commerce Department data. Demand for computers, metals and electrical equipment declined or was little changed last month as the global economy cooled.
Housing Struggling
On the housing front, the data today continue to show an industry struggling to gain traction even with ultra-low mortgage rates. Sales of new houses unexpectedly dropped in November to a 438,000 annualized rate, the lowest since July, according to Commerce Department data. The pace for October was also revised down.Economists remain sanguine that housing will soon show more decided improvement along with other forms of consumer spending as low borrowing costs, gains in hiring and a growing population revive demand.
“It is hard to make the case that the housing market won’t start to show better signs,” said Anika Khan, a senior economist at Wells Fargo Securities LLC in Charlotte, a subsidiary of the biggest U.S. mortgage lender. With the job market improving and credit becoming easier to get, “you’ll start to see a more genuine pickup in the housing market, and especially with those lower prices homes.”
Gains in hiring will be key as Federal Reserve policy makers monitor economic data to determine whether the economy is strong enough to warrant raising their benchmark interest rate.
Central bank officials on Dec. 17 said they would be “patient” on the timing of the first interest-rate increase and expect inflation to rise gradually toward their goal.
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