Rise in US consumer spending to spur rate hike
Print Edition
A gauge of US 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 yesterday 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 rose 0.6 percent after gaining 0.2 percent 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 over two-thirds of US 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 hopes 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 Fed has not raised rates since June 2006.
In a separate report, the Labor Department said its producer price index added 0.3 percent last month after falling 0.4 percent in October. But the PPI fell 1.1 percent in the 12 months through November after sliding 1.6 percent in October.
November marked the 10th straight 12-month drop 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 percent target.
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