As the holiday shopping season gained momentum in November, consumer spending saw a notable increase; however, persistent inflation remained a significant concern, according to new data released on Thursday. A report from the Commerce Department, delayed due to the shutdown, indicated that spending increased by 0.5% from October, surpassing economists’ forecasts of a 0.4% rise. Significantly, almost 50% of the increase in spending for the month was attributed to two sectors: health care and energy, which encompasses gasoline. In real terms, consumer spending experienced an increase of 0.3%. In the face of a deteriorating job market, negative sentiment, and elevated uncertainty, consumer spending remains resilient. It has been observed that this phenomenon may be attributed to an increasingly imbalanced environment, or K-shaped economy, wherein high-wealth individuals are experiencing sustained gains and are responsible for the majority of the spending.
While it is challenging to discern the implications of the K-shaped dynamic in the most recent data, the report released on Thursday indicated that robust spending may soon lose momentum, according to Oliver Allen. “The most striking aspect of this report is the fragility of the support for that growth,” he stated. “Income growth at present appears to be exceptionally feeble.” In November, income experienced an increase of 0.3%, with a more modest rise of 0.1% after accounting for taxes. The savings rate, defined as savings as a percentage of disposable income, has decreased to 3.5%, marking the lowest level since October 2022. The report indicated that inflation persisted at levels significantly above the norm, as per the shutdown-delayed findings that incorporated previously unreleased data for October. The Personal Consumption Expenditures price index, which serves as the inflation measure for the Federal Reserve’s 2% target rate, increased by 0.2% on a month-over-month basis, resulting in an annual rate of 2.8%, consistent with the rate reported for September.
Consensus forecasts indicated an anticipated inflation increase of 0.2% from October and a year-over-year rise of 2.8% for the period ending in November, as per FactSet consensus estimates. The persistent inflationary trends continued to exhibit a degree of stickiness and resilience. The core PCE price index, which excludes the more volatile food and energy costs, experienced a 0.2% increase for the fifth consecutive month. On an annual basis, the core PCE index increased by 2.8%, consistent with the most recent figure reported for September. Thursday’s Personal Income and Outlays report represents the most recent installment in a series of significant economic indicators that have been profoundly affected by the 43-day government shutdown, which spanned the entirety of October and the initial 12 days of November. Statistical agencies faced challenges in effectively collecting and processing data during that period, leading to incomplete or distorted information. Consequently, the reports on Personal Income and Outlays for October and November, which were initially set for release on November 26 and December 19, have been consolidated into a single release.
The prolonged delay may render the data somewhat outdated; nonetheless, the report encompasses a collection of information from numerous statistical agencies, offering an extensive overview of American earnings, spending behaviors, savings patterns, and the fluctuations in prices across a diverse range of goods and services. Nonetheless, Thursday’s report included several important qualifications: Due to the inability to collect or produce the complete set of Consumer Price Index data for October, the Commerce Department’s Bureau of Economic Analysis utilized averages from the impacted categories for September and November to derive the October figures. In October, consumer spending increased by 0.5%, marking a modest uptick from the 0.4% growth observed in September. The PCE price index rose by 0.2% on a month-over-month basis, while the annual rate experienced a slight decline to 2.7% for the 12 months concluding in October.