U.S. consumer spending gathered momentum in November as households bought furniture, electronics and a range of other goods, which could further allay fears of a significant slowdown in the American economy even as the outlook overseas continued to darken.
The upbeat data from the Commerce Department on Friday bolstered expectations that the Federal Reserve will raise interest rates for a fourth time this year at its Dec. 18-19 policy meeting, despite moderating inflation and tighter financial market conditions.
It also stood in stark contrast to reports from China showing a dramatic fall off in retail sales in the world’s second-largest economy and from Europe where a key measure of business activity expanded at its slowest rate in four years.
The U.S. central bank has hiked rates three times this year.
“Today’s report shows Fed officials consumers just aren’t confident, they are also putting their money where the mouths are and buying enough goods to keep the economy humming,” said Chris Rupkey, chief economist at MUFG in New York.
Retail sales excluding automobiles, gasoline, building materials and food services surged 0.9 per cent last month after an upwardly revised 0.7 per cent increase in October.
These so-called core retail sales, which correspond most closely with the consumer spending component of gross domestic product, were previously reported to have gained 0.3 per cent in October. Economists polled by Reuters had forecast core retail sales rising 0.4 per cent last month.
November’s increase in core retail sales and upward revisions to October’s data suggested a brisk pace of consumer spending in the fourth quarter. Consumer spending, which accounts for more than two-thirds of the U.S. economy, increased at a 3.6 per cent annualized rate in the July-September quarter.
A sharp sell-off on Wall Street and partial inversion of the U.S. Treasury yield curve had stoked fears of a recession. But worries over the economy’s health were eased on Thursday after government data showed the number of Americans seeking unemployment benefits fell back to a near 49-year low last week.
Gross domestic product estimates for the fourth quarter are around a 2.4 per cent rate. The economy grew a 3.5 per cent pace in the July-September period. Spending is being boosted by a tightening labour market, which is starting to spur faster wage growth, lower taxes and moderate inflation.
The dollar hovered near a 19-month peak against a basket of currencies. U.S. Treasury prices rose, while stocks on Wall Street fell on fears of a global economic slowdown.
BROAD GAINS IN RETAIL SALES
Consumer spending in the fourth quarter could also get a boost from a surge in demand for utilities in November. In a second report on Friday, the Fed said industrial production rebounded 0.6 per cent last month after falling 0.2 per cent in October.
Industrial output was driven by a 3.3 per cent surge in utilities production as an unseasonably cold November boosted demand for heating. Mining production rose 1.7 per cent last month, but manufacturing output was unchanged.
Overall retail sales, however, rose only 0.2 per cent in November as cheaper gasoline undercut sales at service stations. Gasoline prices have dropped about 40 cents per gallon since October, according to the U.S. Energy Information Administration.
Oil prices have fallen by a third since the start of October amid concerns about oversupply and a slowing global economy.
Retail sales increased by an upwardly revised 1.1 per cent in October. They were previously reported to have surged 0.8 per cent.
Sales at service stations tumbled 2.3 per cent last month, the biggest drop since May 2017, after rising 3.2 per cent in October. Auto sales gained 0.2 per cent after accelerating 1.5 per cent in the prior month.
Sales at building material stores slipped 0.3 per cent.
Receipts at clothing stores dropped 0.2 per cent after jumping 1.3 per cent in October. The drop in clothing sales probably reflects deep discounting by retailers seeking to lure shoppers.
Online and mail-order retail sales surged 2.3 per cent, the largest gain in a year, after increasing 0.8 per cent in October.
Receipts at furniture stores rebounded 1.2 per cent. Sales at electronics and appliance stores increased 1.4 per cent. Spending at hobby, musical instrument and book stores increased 0.4 per cent. But sales at restaurants and bars fell 0.5 per cent after rising 0.6 per cent in October.