Consumer Spending Strong; Inflation Increases Above Target Zone

by: Roy Mehta

The Commerce Department reported both consumer spending and inflation jumped in November. Personal consumption increased 1.1%, the highest rate since May 2004. The report showed October spending climbed an upwardly revised 0.4%. Core inflation gained 0.2% for the month, which was below forecasts, but the year-over-year figure jumped to 2.2%. The number was ahead of the Fed's unofficial target zone of 1.0-2.0%. Nominal income rose 0.4%. Economists were looking for a 0.5% increase in nominal income in November and a 0.9% jump in consumption. "We can postpone fears of a recession at least until next year," said Ryan Reed, an economist at National City Corp. (NCC), after seeing consumers' strong spending in November. "Inflation sure is worrying the Fed, but there is not much they can be doing at this point." Including taxes and inflation, real disposable incomes fell 0.3% and real consumer spending increased 0.5%. This showed U.S. consumers actually spent more than they earned in November, leading to the first negative personal savings rate in 15 months.

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