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US consumer spending rises more than expected; savings lowest

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US consumer spending rises more than expected.

[WASHINGTON] US consumer spending accelerated in November amid an increase in demand for recreational goods and utilities, but the strong pace of consumption is unlikely to be sustained as savings dropped to their lowest level in more than nine years.

The Commerce Department said on Friday consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.6 per cent last month after a downwardly revised 0.2 per cent increase in October.

Economists polled by Reuters had forecast consumer spending increasing 0.5 per cent in November after a previously reported 0.3 per cent rise in October. Spending on nondurable goods surged 1.2 per cent and outlays on services rose 0.6 per cent. Spending on long-lasting goods was unchanged.

When adjusted for inflation, consumer spending increased 0.4 per cent in November after being unchanged the prior month.

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The report added to bullish data on the labor market, manufacturing and housing in painting a strong picture of the economy as the year winds down.

The government reported on Thursday that the economy grew at a 3.2 per cent annualized rate in the third quarter. Growth estimates for the October-December quarter are currently as high as a 3.3 per cent pace.

Consumer spending could get a lift from sweeping individual income tax cuts approved by the US Congress this week. The income tax cuts are, however, skewed toward higher-income households, which economists say have a low propensity to consume.

Monthly inflation remained benign in November. The Federal Reserve's preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, rose 0.1 per cent in November after gaining 0.2 per cent in October. The so-called core PCE increased 1.5 per cent in the 12 months through November, picking up from 1.4 percent in October.

The core PCE has undershot the Fed's 2 per cent target since mid-2012. Inflation could determine the pace at which the Fed raises interest rates next year. The US central bank increased borrowing costs three time this year and has forecast three rate hikes in 2018.

Personal income rose 0.3 per cent last month after advancing 0.4 per cent in October. Wages increased 0.4 per cent last month.

With spending outpacing income, savings fell to US$426.2 billion in November, the lowest level since August 2008, from US$466.9 billion in the prior month. The saving rate dropped to 2.9 per cent, the lowest since November 2007, from 3.2 per cent in October.

REUTERS