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Consumer spending, which accounts for two-thirds of US economic activity, showed robust growth in November as expected with 0.4% growth according to the Commerce Department. The increase was accompanied by a rise in personal income of 0.5%, allowing for increased spending approaching the holiday shopping season.

Key Takeaways

• Personal-consumption expenditures (PCE) rose 0.4% in November as expected.
• Personal income beat expectations with 0.5% growth vs. 0.3% expected.
• Wage growth and low unemployment continues to strengthen the US economy during turbulent international conditions.

Spending on goods rose 0.5% in November, driving spending overall. Spending on services rose 0.4%, led by a rise in healthcare spending. Durable goods orders rose 1%, largely driven by spending on vehicles. US household income saw gains while wages and salaries rose 0.4%, adjusted for seasonal inflation. The US economy reportedly grew 2.1% in Q3 according to an estimate released on Friday, confirming the previous estimate. The increase was led by strong consumer spending, and that looks set to continue into Q4 GDP.

The spending period from Thanksgiving to Cyber Monday saw 16% growth in spending compared to the same period in 2018 according to the National Retail Federation. This data lies in contrast to sub-expectation retail sales data released in a report last week. The shopping season was cut short with Thanksgiving falling closer to Christmas this year, which may account for the weaker November figures. The December retail sales report will shine more light on retail sales activity that may have been skewed by the 6-day decrease in the season.

Inflation Data

The PCE index, the Federal Reserve’s preferred gauge of inflation, rose 1.5% annually in November compared to 1.4% the month before. This reveals inflation to be well below the target range of 2%. Core PCE, which excludes the volatile components of food and energy, rose 1.6% annually in November. The Fed implemented three separate interest rate cuts throughout 2019 to curb tame inflation and bring it closer to the target range, battling against reduced business investment and manufacturing activity as a result of the trade war.

The PCE deflator rose 0.2% in Nov. for the second straight month. Energy costs were up 0.8% in Nov., slowing from 2.6% growth in Oct., but food prices were flat. The core PCE deflator, which excludes food and energy prices, inched up 0.1% in Nov. for the fourth consecutive month. pic.twitter.com/rqhpDqSQqc

— Chad Moutray (@chadmoutray) December 20, 2019

A Friday report showed that the US and China have entered a preliminary trade agreement to reduce US tariffs in exchange for increased Chinese purchases of US farm produce. The agreement, called Phase One, may mark a gradual de-escalation in the lengthy trade war which has negatively impacted both national economies.

Expert Outlook

Best Buy CFO Matt Bilunas spoke on the state of retail sales and the consumer portion of the economy recently, saying:

 “We still feel like the consumer is relatively strong and the economic indicators are in a good spot. Although there’s been a little bit of waning of consumer confidence, we still feel like the consumer’s in a good position, so that’s a good thing for us.”

Market Reaction

Gold prices have held firm throughout the day following the release of the inflation and consumer spending data as well as an additional Q3 GDP estimate. Spot gold last traded at $1,477.42/oz, down -0.05% with a high of $1,481.25/oz and a low of $1,476.05/oz. With gold trading near daily lows, it’s possible that the reduced market volatility is due to the beginning of the December holiday season.

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