U.S. consumer spending rose 0.5 percent in November

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WASHINGTON (AP) — Americans increased their spending in November by the most in five months, and
their income edged up modestly.Consumerspending rose 0.5 percent from October, when spending had risen
0.4percent, the Commerce Department said Monday. It was the best showingsince June. The gain was driven by a
jump in spending on long-lastingdurable goods such as autos.Consumers’ income rose 0.2 percent,an
improvement from a 0.1 percent decline in October. Wages andsalaries, the most important component of
income, rose a solid 0.4percent. That gain reflected strength in the private sector and a modestgain in
government pay.Consumer spending is closely followedbecause it accounts for about 70 percent of economic
activity. Thestrong November showing suggests solid economic growth this quarter.Steadyhiring and modest
wage gains have boosted consumer confidence and givenAmericans more money to spend. At the same time, higher
stock and homeprices have driven up household wealth and made some people morecomfortable about spending.The
big rise in spending and smallerincome gain meant that the personal saving rate slipped a bit to 4.2percent
of after-tax income in November. That was down from 4.5 percentin October.An inflation gauge tied to
consumer spending that isclosely followed by the Federal Reserve showed that inflation is stillrunning well
below the Fed’s target. Prices were unchanged in Novemberand have risen just 0.9 percent over the past 12
months. The Fed’starget for annual inflation is 2 percent.The economy, as measuredby the gross domestic
product, grew at an annual rate of 4.1 percent inthe July-September quarter, the government said Friday in
its third andfinal estimate. The government’s figure was up from its previousestimate of a 3.6 percent
annual growth rate for the third quarter.Nearly all of the upward revision reflected faster spending
forconsumers, a possible sign of momentum entering the final three monthsof the year.The 4.1 percent growth
rate in the third quarter wasthe best performance in nearly two years. It was only the second timesince the
economic recovery began in mid-2009 that annual growth in anyquarter has topped 4 percent.Economists caution
that growth willlikely slow in the October-December period. That’s because two-fifths oflast quarter’s gain
came from an unusually large buildup in businessstockpiles — something not likely to be repeated this
quarter.Butanalysts were encouraged by the recent acceleration in spending and sayrising job growth could
fuel more spending in coming months. Manyanalysts believe the economy’s annual growth rate will slow to
between 2percent and 2.5 percent this quarter because of the expected drag fromslower stockpiling. But some
said the better-than-expected spendingcould mean more strength than expected and a stronger start to
2014."Consumersare spending at the fastest rate this quarter than any time since2010," said Chris
Rupkey, chief financial economist at Bank ofTokyo-Mitsubishi. "With numbers like these, tomorrow is
shaping up to bethe better tomorrow we have wanted to see ever since the recessionended almost five years
ago."President Barack Obama took notelast week of the encouraging reports, including four straight
months ofsolid job gains. That spurt of hiring has helped lower the unemploymentrate to 7 percent, a
five-year low.The drag from higher taxes andacross-the-board spending cuts has shaved an estimated 1.5
percentagepoints from economic growth this year, which analysts think will bearound 1.8 percent. But the
effects will lessen next year, somethingeconomists note in their forecasts for around 2.5 percent growth
orbetter in 2014.A stronger outlook for the economy and job marketled the Fed last week to begin winding
down its bond-buying program. TheFed’s bond purchases have been intended to lower long-term interestrates
and encourage more borrowing and spending.The Fed said thatit would begin reducing its $85 billion-a-month
in bond purchases by$10 billion in January. Chairman Ben Bernanke said that if the economykeeps improving,
the bond purchases could be trimmed by similar amountsat coming meetings.Jennifer Lee, senior economist at
BMO CapitalMarkets, said the stronger spending in October and November validatesthe Fed’s decision to pare
its bond purchases and should boost growththis quarter. At the same time, tepid inflation allows the Fed to
makeonly modest reductions in its bond purchases without fear of ignitingprice increases.Copyright 2013 The
Associated Press. All rightsreserved. This material may not be published, broadcast, rewritten
orredistributed.

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