U.S. consumer spending rose 0.4% in November, underscoring the economy's resilience as inflation showed signs of moderating. Led by strong demand for new motor vehicles, recreational goods, and financial services, the uptick highlights robust household activity despite persistent economic uncertainties. Adjusted for inflation, real consumer spending grew by 0.3%, setting the stage for another solid GDP performance in the fourth quarter, with the Atlanta Fed forecasting a 3.1% annualized growth rate.
Inflation metrics offered encouraging signals, with core PCE inflation rising just 0.1%, the smallest gain in six months. Yet, annual core inflation remained elevated at 2.8%, well above the Federal Reserve’s 2% target. Fed Chair Jerome Powell expressed optimism about the economy’s strength, but projected only two rate cuts in 2025, down from four in September, reflecting the central bank's cautious approach amid high inflation and uncertainty over President-elect Donald Trump’s policy plans, including tariffs and tax cuts.
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Market Overview
- Consumer spending rose 0.4% in November, with real spending up 0.3% after inflation adjustment.
- Core PCE inflation increased 0.1%, the smallest monthly rise since May.
- The Fed projects 3.1% GDP growth in Q4, driven by consumer activity and wage gains.
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Key Points
- Spending on autos, recreation, and financial services led the November increase.
- Personal income grew 0.3%, while the savings rate dipped to 4.4%, reflecting cautious optimism.
- Housing inflation moderated, with rents rising at the slowest pace since April 2021.
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Looking Ahead
- Trump’s proposed tariffs could disrupt inflation trends and consumer spending in 2025.
- Higher-income households will continue driving spending, while lower-income groups face pressure.
- Core inflation trends will remain critical to future Fed policy decisions on rate cuts.
- Consumer spending rose 0.4% in November, highlighting the resilience of the U.S. economy despite inflationary pressures.
- Real consumer spending growth of 0.3% signals robust household activity, supporting a strong GDP forecast of 3.1% in Q4 by the Atlanta Fed.
- Core PCE inflation’s smallest monthly rise in six months (0.1%) suggests moderating price pressures, providing relief to consumers.
- Wage growth and stable household balance sheets continue to fuel spending on autos, recreation, and financial services.
- The Federal Reserve’s cautious approach to rate cuts reflects confidence in the economy’s ability to sustain growth while managing inflation risks.
- Annual core inflation remains elevated at 2.8%, well above the Fed’s 2% target, posing challenges to achieving price stability.
- The savings rate dipping to 4.4% may indicate that households are depleting reserves, potentially limiting future spending capacity.
- Trump’s proposed tariffs and tax cuts could disrupt inflation trends and weigh on consumer spending in 2025, creating economic uncertainty.
- Spending disparities between higher- and lower-income households could exacerbate inequality, dampening overall economic momentum.
- The Fed’s reduced rate cut projections for 2025 signal persistent inflation risks that could constrain monetary policy flexibility.
The November data highlights the enduring strength of the U.S. economy, driven by consumer demand and buoyed by robust wage growth and household balance sheets. However, persistent inflation and uncertainties surrounding Trump’s trade policies could weigh on the broader economic outlook in 2025.
As the Federal Reserve navigates these dynamics, its cautious approach to rate adjustments reflects a balanced effort to sustain growth while managing inflation risks. For now, consumer spending remains a pillar of economic resilience heading into the new year.
