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Consumer Spending Growth Weakened in November

2 min read

WASHINGTON — Consumers slowed the growth in their spending in November and income growth was flat, two worrisome signs at the start of the holiday shopping season.

Consumer spending rose 0.2 percent in November, the weakest showing since a 0.1 percent rise in August, the Commerce Department reported Thursday. Spending had posted healthy gains of 0.7 percent in September and 0.4 percent in October.

Incomes were unchanged in November after gains of 0.5 percent in October and 0.4 percent in September.

So far, spending in the holiday shopping season has not been as strong as last year. That has prompted some stores to offer better deals and incentives such as free shipping.

Retailers have pared down their inventories and offered more exclusive merchandise in a bid to avoid having to offer bigger discounts in coming weeks. But so far, shoppers have shown a willingness to wait. That means stores are once again counting on last-minute buyers for the final stretch of holiday shopping.

Paul Ashworth, chief U.S. economist at Capital Economics, said based on the new report, consumer spending is on track to grow at an annual rate of 2.3 percent in the fourth quarter, a slowdown from 3 percent growth in the third quarter.

Consumer spending represents 70 percent of total economic activity. A separate report Thursday showed that the economy grew 3.5 percent in the third quarter. However, economists believe growth will ease to around 1.5 percent in the fourth quarter.

Even with the slowdown, economists are hopeful that consumers will keep spending in 2017.

“The fundamentals for consumers remain good,” said Gus Faucher, senior economist at PNC, in a note to clients. “Rising incomes will support gains in consumer spending throughout 2017, keeping the expansion going.”

The weakness in income growth reflected a 0.1 percent decline in the most important component, wages and salaries. That drop followed two months of strong wage increases.

The personal saving rate dipped to 5.5 percent of after-tax income in November, the lowest level since a saving rage of 5.3 percent in March 2015.

Inflation, as measured by a gauge tied to spending, climbed 1.4 percent compared to a year ago. Excluding food and energy, prices were up 1.6 percent from a year ago. Both readings are below the Federal Reserve’s 2 percent target for annual price increases, allowing the central bank to continue its gradual pace of boosting interest rates to make sure inflation remains under control.

The Fed boosted a key rate by a quarter-point last week, only the second increase in a year, and projected a possible three rate increases for 2017.

(Copyright 2016 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.)

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