Consumer spending rises

December 11, 2015 09:20 AM

A gauge of U.S. consumer spending rose solidly in November, suggesting enough momentum in the economy for the Federal Reserve to raise interest rates next week for the first time in nearly a decade.

Other data on Friday showed producer prices increased last month as services cost more, but the underlying trend continued to point to weak inflation pressures.

Retail sales excluding automobiles, gasoline, building materials and food services increased 0.6 % after gaining 0.2 % in October, the Commerce Department said. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, surprisingly slowed in September and October. The moderation came despite a tightening labor market, which has started to lift household income.

The latest signs of strength in consumption could see economists bumping up their fourth-quarter growth estimates.

Solid domestic demand supports expectations that the Fed will raise its benchmark overnight interest rate from near zero when policymakers conclude a two-day meeting next Wednesday, despite weak inflation.

The U.S. central bank has not raised rates since June 2006.

In a separate report, the Labor Department said its producer price index advanced 0.3 % last month after falling 0.4 % in October. But the PPI declined 1.1 % in the 12 months through November after sliding 1.6 % in October.

November marked the 10th straight 12-month decrease in the index. Dollar strength and continued declines in oil prices amid a glut and slowing global growth have dampened price pressures, leaving inflation running persistently below the Fed's 2 % target.

U.S. Treasury debt prices slipped on the data and the dollar weakened against the euro and the yen.

Last month, overall retail sales increased only 0.2 % as automobile sales fell and cheaper gasoline weighed on receipts at service stations. Retail sales edged up 0.1 % in October.

Auto sales slipped 0.4 % last month, the largest decline since June, after falling 0.3 % in October. Though automakers reported strong sales in November, the units sold were slightly below October's levels.

Receipts at service stations fell 0.8 % after decreasing 1.0 % in October.

Elsewhere, sales at clothing stores shot up 0.8 %, the largest increase since May. Sales at online retailers rose 0.6 % and receipts at sporting goods and hobby stores increased 0.8 %. Sales at electronics and appliance outlets advanced 0.6 %.

The increase last month in discretionary spending suggested a fairly busy start to the holiday shopping season. However, receipts at building materials and garden equipment stores slipped 0.3 % as did sales at furniture stores.

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