Why Consumers May Spend More in 2016

December 23, 2015, 2:10 PM UTC
Wal-Mart Prepares For Black Friday Shopping Rush
MIAMI, FL - NOVEMBER 24: Jonathan Mary fixes the sign indicating that there are 30 more days until Christmas at a Walmart store as they prepare for Black Friday shoppers on November 24, 2015 in Miami, Florida. Black Friday, which is the day after Thanksgiving, is known as the first day of the Christmas shopping season and most retailers offer special deals on the day. (Photo by Joe Raedle/Getty Images)
Photograph by Joe Raedle via Getty Images

U.S. personal income in November rose for an eighth straight month on solid wage gains, which should support consumer spending and bolster economic growth next year.

The Commerce Department said on Wednesday income increased 0.3% last month after an unrevised 0.4% rise in October. Economists polled by Reuters had forecast income advancing 0.2% last month.

Wages and salaries rose 0.5%, adding to a 0.6% gain in October. A tightening labor market, marked by an unemployment rate that is in a range some Federal Reserve officials consider consistent with full employment, is starting to lift wages.

The Commerce Department’s Bureau of Economic Analysis inadvertently released part of the consumption portion of its report late on Tuesday. It showed consumer spending increased 0.3% last month after being unchanged in October.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.3% when adjusted for inflation after holding steady in October.

While consumer spending is likely running below the third-quarter’s annualized brisk pace of 3.0%, November’s increase could prompt economists to modestly lift their fourth-quarter gross domestic product estimates.

GDP growth estimates for the final three months of the year have been hovering around a 2% rate, the same pace of growth in the third quarter.

With spending outpacing income, savings fell to $747.6 billion. Still, they remain at lofty levels.

Inflation continued to run below the Fed’s 2% target last month. A price index for consumer spending was unchanged after nudging up 0.1% in October.

In the 12 months through November, the personal consumption expenditures (PCE) price index was up 0.4% after rising 0.2% in October.

Excluding food and energy, prices nudged up 0.1% after being unchanged in October. The so-called core PCE price index rose 1.3% in the 12 months through November, for the 11th straight month.

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