U.S. Personal Spending Up Solidly in November

• US personal spending jumped 0.5% in November 2013, thereby matching market expectations and building on upwardly revised 0.4% (was 0.3%) and 0.3% (was 0.2%) increases in October and September, respectively.
• All of the increase in spending reflected higher volumes, which jumped a solid 0.5% in November to mark the fastest pace of monthly growth in the measure since February 2012.
• The gain in monthly spending was despite a smaller than expected 0.2% rise in personal income in November. Market expectations had been for a 0.5% increase. Disposable income inched up a slightly smaller 0.1%, and with spending rising more than incomes, the saving rate dropped to 4.2% from 4.5% in October.
• The jump in the volume of personal spending in November following steady, and upwardly revised, gains in earlier months left the measure on a solid upward trend two-thirds of the way through the fourth quarter of 2013. Specifically, consumer spending is on track to increase at close to a 4% rate in the fourth quarter, which would be above both our current forecast for a 2.5% gain and the 2.0% increase in the third quarter that, while still modest, was revised up notably from a 1.4% pace in last Friday’s third and final estimate of third-quarter 2013 gross domestic product (GDP) growth. We still expect a smaller inventory build and falling government spending to prevent a repeat of the outsized 4.1% increase in GDP in the third quarter; however, offset from stronger growth in consumer spending appears likely to limit the slowing to a 2.3% rate.

Personal consumer expenditure (PCE) jumped 0.5% in November 2013, thereby building on upwardly revised 0.4% (was 0.3%) and 0.3% (was 0.2%) gains in October and September, respectively. Spending on durable goods rose 1.9%, in part reflecting higher spending on motor vehicles flagged by earlier reported solid unit auto sales in the month. Spending on non-durable goods dipped 0.4%, although part of the weakness in the nominal measure likely reflected falling gasoline prices with the volume of non-durable goods spending unchanged in the month. Spending on services jumped 0.6%, thereby marking the fastest pace of growth in services spending since August 2007. In part, the strength in services reflected a 6.8% rebound in spending on utilities after a 1.9% drop in the component limited growth in services spending in October to just 0.1%.

Consumer price inflation, as measured by the PCE deflator, was unchanged for a second consecutive month in November. On a year-over-year basis, the measure was up a modest 0.9%, although this was still slightly stronger than the 0.7% annual rate in October. Growth in the key core PCE measure was also modest, rising just 0.1% on a month-over-month basis and 1.1% on a year-over-year basis in November.

With prices overall unchanged, the volume of personal spending matched the 0.5% increase in nominal terms. The increase in November followed upwardly revised 0.4% (was 0.3%) and 0.2% (was 0.1%) increases in October and September, respectively.

The gain in monthly spending was despite a smaller than expected 0.2% rise in personal income in November. Market expectations had been for a 0.5% increase. Disposable income inched up by a slightly smaller 0.1%, and with spending rising more than incomes, the saving rate dropped to 4.2% from 4.5% in October.

The jump in the volume of personal spending in November following steady, and upwardly revised, gains in earlier months left the measure on a solid upward trend two-thirds of the way through the fourth quarter of 2013. Specifically, consumer spending is on track to increase at close to a 4% rate in the fourth quarter, which would be above both our current forecast for a 2.5% gain and the 2.0% increase in the third quarter that, while still modest, was revised up notably from a 1.4% pace in last Friday’s third and final estimate of third-quarter 2013 GDP growth. We still expect a smaller inventory build and falling government spending to prevent a repeat of the outsized 4.1% increase in GDP in the third quarter; however, offset from stronger growth in consumer spending appears likely to limit the slowing to a 2.3% rate. This represents an upward revision relative to our former expectation that GDP will rise 1.4% in the quarter.

Information contained in this report has been prepared by the Economics Department of RBC Financial Group based on information obtained from sources considered to be reliable. While every effort has been made to ensure accuracy and completeness, RBC Financial Group makes no such representation or warranty, express or implied. This report is for information purposes only and does not constitute an offer to sell or a solicitation to buy securities.

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