Consumer Spending Makes Biggest Leap Since 2004

The Commerce Department reported Friday that consumer spending surged by 1.1 percent in November, reflecting various promotional efforts by retailers such as heavy discounting and longer store hours at the start of the holiday shopping season.

The gain is nearly triple the October gain of 0.4 percent, and it's the biggest since May 2004, when spending surged 1.2 percent.

Separately, incomes rose in November by 0.4 percent — double the October increase but slightly below the advance that had been expected.

With spending rising at a faster rate than savings, the nation's savings rate dipped into negative territory in November at 0.5 percent. That meant that households spent all of their incomes and either dipped into savings or borrowed to finance the higher level of spending last month.

An inflation gauge tied to spending showed a 0.6 percent increase in November, the biggest jump in more than two years, reflecting last month's surge in gasoline prices.

Excluding energy and food, prices were up 0.2 percent. Core inflation is up 2.2 percent over the past 12 months, above the upper range of the Federal Reserve's comfort zone of 1 percent to 2 percent.

The big jump in spending came at a critical time for retailers — the start of the crucial holiday shopping season. But there have been more recent signs of sales slowing in December as consumers have delayed holiday shopping.

Consumer spending is closely watched because it accounts for two-thirds of total economic activity.

Many economists believe that overall economic growth will be at a barely discernible rate of 1 percent in the current quarter, as the country struggles with the fallout from the housing downturn and a spreading credit crisis that has made bank loans harder to get for individuals and businesses.

While the risks of a recession have risen, the Federal Reserve is fighting to avert a full-blown downturn by cutting interest rates. It has not been as aggressive as financial markets want, however, because of Fed worries about inflation pressures.

From NPR reports and The Associated Press

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