EconoFACTS

January 22, 2026 | 11:27

U.S. Real Personal Spending Accelerates In Nov/Oct, But Income Growth Stagnates

Economist

Chief U.S. Economist and Managing Director
Economics

Scott Anderson is BMO’s Chief U.S. Economist and Managing Director. He analyzes and forecasts U.S. national and ... (Read more)

Scott Anderson , Ph.D.

Chief U.S. Economist and Managing Director
Economics

Scott Anderson is BMO’s Chief U.S. Economist and Managing Director. He analyzes and forecasts U.S. national and ... (Read more)

The U.S. consumer continues to close its eyes and keep spending. The release of the delayed October and November Personal Income and Spending report revealed a strong re-acceleration in real spending over the first two months of the fourth quarter to over a 3.0% annualized pace that will drive a significant upward revision in Q4 real consumer spending and GDP growth estimates. However, the U.S. consumer may be operating on borrowed time. This spending surge is occurring even as real disposable personal income growth is showing serious signs of stagnation and deterioration. Real disposable personal income growth was virtually unchanged in the third quarter and this stagnation appears to have continued into October and November. The disconnect between real spending and income is striking. Rapid wealth gains from higher-income households are clearly helping to keep real consumer spending afloat and may be the most important driver right now. The personal savings rate kept sinking to 3.5% in November from 4.0% in September and 5.5% back in April. The savings rate is now at its lowest level since 2022. Consumers will be counting on bigger income tax refunds to help replenish their savings in the first half of 2026.

PCE inflation and core inflation, the Federal Reserve’s preferred measures of consumer inflation, were both right in-line with our forecasts and the consensus in October and November. PCE headline and core prices increased 0.2% in November, with their year-on-year measures increasing a tick to 2.8% from 2.7% in October. The monthly headline rate picked up to 2.5% on an annualized basis in November, while the core measure cooled to 1.9%, a bit below the Fed’s 2.0% target at least for one month. PCE goods inflation excluding food and energy remained flat for a second month in a row, suggesting tariff induced inflation impacts continue to fade.

Bottom-line: The U.S. consumer continues to drive the expansion but will need to rely more on swelling personal income tax refunds to sustain that growth at the beginning of the year. Our fourth quarter real consumer spending estimate will likely see a significant upgrade to around 3.0% annualized, even as real disposable personal income growth remains virtually unchanged for a second quarter in a row. Core PCE inflation remained tame over the past two months, while goods inflation is showing almost no tariff impact in recent months, suggesting tariff effects have likely peaked. This could open the door for further Fed rate cuts in 2026. However, puzzling crosscurrents between robust spending and waning real income should keep the Fed on the sidelines at next week’s FOMC meeting.

Table 1 - United States — Personal Income and Consumption

(month/month % change)

Source: BMO Economics, Haver Analytics