| U.S. consumer spending accelerated in November and shipments of key capital goods orders increased for the 10th straight month, the latest signs of strong momentum in the economy as the year winds down.
But the bullish growth picture was dimmed somewhat as the reports on Friday also showed household savings dropped last month to their lowest level in more than nine years. Low savings suggest the strong pace of consumer spending is unlikely to be sustained unless there is a significant pickup in wage growth.
The Commerce Department said consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.6 percent last month after gaining 0.2 percent in October. Spending last month was buoyed by an increase in demand for motor vehicles, recreational goods and utilities.
When adjusted for inflation, consumer spending increased 0.4 percent in November after being unchanged the prior month. Personal income rose 0.3 percent last month, with wages increasing 0.4 percent.
With spending outpacing income, households dipped into their savings, which fell to $426.2 billion. That was the lowest level since August 2008 and was down from $466.9 billion in October. The saving rate dropped to a 10-year low of 2.9 percent from 3.2 percent in October.
Consumer spending could get a lift from a $1.5 trillion tax cut package approved by Republicans in the U.S. Congress this week, in the largest overhaul of the tax code in 30 years.
The package, which slashes the corporate income tax rate to 21 percent from 35 percent and offers tax cuts for individuals, is a major legislative victory for President Donald Trump.
The Trump administration argues that the tax cut will boost both business and consumer spending, though many economists are not convinced.
The individual income tax cuts are skewed toward higher-income households, which economists say have a low propensity to consume. Economist also believe companies will use much of the windfall on share buy-backs and debt reduction.
Despite the increase in spending, monthly inflation remained benign in November. The Federal Reserve’s preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, rose 0.1 percent in November after gaining 0.2 percent in October.
Friday’s reports added to bullish data on the labor market, manufacturing and housing in painting a strong picture of the economy as the year ends. Growth estimates for the October-December quarter are currently as high as a 3.3 percent pace.
