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Personal Income and Spending grew for November with a 0.4% increase in purchases compared to a forecast 0.3%, and a 0.1% increase in the PCE Index, a key index used by the Federal Reserve to help determine monetary policy around interest rates.

As spending outpaced wage growth, the rise in spending may not be sustainable.

Key Takeaways

• Consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.4% last month.
• Households bought motor vehicles and spent more on utilities, although moderate wage growth suggests that these increases may not be long-term sustainable.
• October data was revised upwards to  show an 0.8% increase in activity instead of the previously reported 0.6%.
• Consumer spending outpaced income growth in November.

The monthly increase is 0.1% lower than expected at 0.2% - when adjusted for inflation, consumer spending rose 0.3% in November. Consumer spending is still being viewed as strong which is offsetting the effects of a worsening trade deficit, a decline in the housing market, and reduced spending on business investment in equipment.

GDP estimates for Q4 are between 2.5% and 3% after Q3 saw growth of 3.4%, down from Q2.

November saw spending on goods increase 0.4% following the 0.9% surge in October with outlays on services boosting 0.4% in November as well following a 0.7% increase in October. The personal consumption expenditures (PCE) price index which excludes food and energy climbed 0.1% in November as well as October.

Personal income rose 0.2% last month after a 0.5% increase in October with a 0.4% drop in dividend payments offsetting further October growth. Declines were seen in social security benefit payments. Savings also fell to $944.2 billion last month, the lowest in a year.

Monetary Policy

Food and energy are excluded due to volatility, with the PCE being seen as a more stable and valuable indicator of economic activity. The index is used as the preferred measure of inflation by the Federal Reserve, with the central bank’s 2% inflation target met in March for the first time since April 2012. The PCE index rose from an eight-month low in October of an annual 1.8% to 1.9% in November.

On Wednesday the central bank introduced the fourth rate hike of 2018 but indicated that there would be fewer rate hikes in 2019, and that its tightening cycle is coming to a close due to international economic slowdown and volatility in the financial markets.

Expert Outlook

Federal Reserve policymakers now expect two rate hikes for next year instead of three (or four, which was seen as a possibility earlier in the year). Two rate hikes are more in line with demand and expectation seen in the market throughout the year.

Market Reaction

Gold is down .47% at $1,257.62/oz with a high of $1,266.29/oz and a low of $1,256.24/oz. Selling pressure may be coming from the stronger-than-expected spending data, although it is being viewed as unsustainable and also perhaps offset by reduced demand for core durable goods orders.

February gold futures are down -0.43% and trading at $1,262.40.