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Consumer Spending in U.S. Rose in November as Incomes Rebounded

Dec. 21 (Bloomberg) -- Spending by U.S. consumers climbed in November as Americans pushed aside the threat of higher taxes next year, buying gifts for the holidays and making up for shopping lost to superstorm Sandy.

Purchases increased 0.4 percent last month after a 0.1 percent drop in October that was smaller than previously estimated, Commerce Department figures showed today in Washington. The gain matched the median forecast of 80 economists surveyed by Bloomberg. Incomes rebounded after being depressed in October by lost wages due to Sandy.

A better showing by consumers, whose spending makes up 70 percent of the economy, will help sustain the expansion as businesses rein in investment and global buyers temper demand. At the same time, households are set to be challenged by more than $600 billion in tax increases and federal spending cuts due to be put in place for January without action from Congress.

“Consumer spending growth was pretty healthy in November,” Scott Hoyt, senior director at Moody’s Analytics Inc. in West Chester, Pennsylvania, said before the report. “A reasonable chunk of that was a rebound from Sandy.”

Economists’ spending projections ranged from gains of 0.2 percent to 0.7 percent. The Commerce Department initially reported that October spending dropped 0.2 percent.

Another report today showed demand for goods such as machinery and electronics climbed in November for a second month, showing companies are planning to expand next year as they look beyond the tax increases and spending cuts slated to take effect.

Business Investment

Bookings for non-defense capital goods excluding aircraft, a proxy for future business investment, rose 2.7 percent last month, the Commerce Department reported today in Washington. Orders for all durable goods climbed 0.7 percent, exceeding the median forecast of economists surveyed by Bloomberg that projected a 0.3 percent advance.

Incomes climbed 0.6 percent in November, the most since February, after a 0.1 percent increase the prior month, today’s spending figures also showed. Superstorm Sandy cut pay by about $182 billion at an annual rate in October, the Commerce Department said. Economists projected incomes would increase 0.3 percent, according to the median estimate.

Wages and salaries also advanced 0.6 percent in November after falling 0.3 percent a month earlier. The saving rate climbed to 3.6 percent.

Sandy Effect

When the Commerce Department issued the October report, it said Sandy had affected 24 states, though the agency said it couldn’t precisely quantify the effect on spending and income. Auto dealers confirmed a storm disruption that month, and retailers like Urban Outfitters Inc. said the adverse weather at the end of October shuttered shops and curtailed sales.

Industry figures show car and light truck sales rebounded in November as buyers returned to showrooms following the storm. Light-vehicles sold at 15.5 million annual rate last month, the most since 2008, according to data from Ward’s Automotive Group.

Retail sales, an early read on household spending, rose 0.3 percent in November after a 0.3 percent drop the month before, Commerce Department figures showed last week. Ten of 13 major categories showed gains, led by gains at auto dealers, electronics outlets and clothing stores.

The holiday shopping season also started off strongly, with consumers spending 13 percent more during the four-day U.S. Thanksgiving weekend than in the same period in 2011. Purchases rose to $59.1 billion from Nov. 22 through today from $52.4 billion last year, according to the National Retail Federation.


Today’s report showed inflation-adjusted spending increased 0.6 percent in November, the biggest gain since August 2009. Price-adjusted purchases of durable goods, including automobiles, rose 2.9 percent in November after a 0.9 percent drop. Outlays on non-durable goods, which includes gasoline, advanced 0.3 percent last month and receipts on services also climbed 0.3 percent.

In the third quarter, household purchases climbed at a 1.6 percent annual rate, the Commerce Department said yesterday.

The strength of consumer spending going forward depends on whether job creation will feed into income growth and whether Congress allows taxes to rise in January, thereby eating into Americans’ paychecks. A healing housing market will also help stir spending by boosting household wealth, and falling gasoline prices could shore up buying power.

Measures of confidence, which plays a role in consumers’ decision to go shopping, have been mixed as concern over a possible jump in taxes is offset by an improving housing market and lower gasoline prices.

Consumer Confidence

The Thomson Reuters/University of Michigan consumer sentiment index decreased to 74.5 this month from 82.7 in November, figures showed Dec. 7. At the same time, the Bloomberg Consumer Comfort Index rose last week to the highest level in eight months.

“Consumers will need to prioritize how and where they are spending,” Robert Hull, chief financial officer of home- improvement retailer Lowe’s Cos. Inc., said during a Dec. 5 investor conference. “The lead up to the fiscal cliff and its outcome has the potential to negatively impact both consumer and business spending. Many companies are hesitant to commit the big ticket investments or to add jobs given this uncertainty.”

Today’s Commerce Department report also showed a measure of prices tied to consumer spending rose 1.4 percent in November from a year earlier, less than the Federal Reserve’s long-run goal of 2 percent. Excluding food and energy costs, the price gauge increased 1.5 percent over the past 12 months..

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