December 23, 2021 | 09:25
U.S. Personal Spending and Durable Goods: Cooler, But Not Cold
American consumers and businesses pulled back spending in November, albeit from strong levels that still flag some underlying strength to confront Omicron heading into the new year.
Personal spending rose an expected 0.6% in November after a slightly upwardly revised 1.4% pop in October, when shoppers bolted to the stores in anticipation of product shortages. The entire increase reflected higher prices. Spending volumes were flat, though after a 0.7% spike the prior month, with sales now up 7.7% y/y, 4.8% annualized so far in the quarter from Q3, and 4.4% above pre-pandemic levels. The November gain was all in real services (0.5%, which actually picked up from the prior pace), offset by a broad decline in goods volumes that was led by autos and clothing.
Spending continues to be supported by rising income. Personal income slowed only marginally to a solid 0.4% rate, helped by a slightly bigger gain in wages and the expanded child tax credit (which now looks to be suspended at least in January due to the stymied Build Back Better deal). The saving rate eased further to 6.9%, now comfortably below 2019 levels.
There was no relief on the inflation front. PCE prices jumped 0.6%, taking the yearly rate up to 5.7% from 5.1%. Core prices popped 0.5%, as per the upwardly revised advance the prior month, hauling its yearly rate to 4.7% from 4.2%. The shorter-term growth trends are near the yearly rate, suggesting underlying inflation is now running the fastest since the early 1980s.
Business spending also looks to have cooled somewhat in November. Although surging aircraft bookings sent durable goods orders flying 2.5% higher in the month, nondefense capital goods orders excluding aircraft fell slightly amid lower machinery sales. Still, the dip in core orders followed an upwardly revised 0.9% advance the prior month and eight consecutive monthly increases, and reflected a second straight advance in the hard-hit auto industry. As well, nondefense capital goods shipments rose modestly in November, and are now up 5.6% annualized in the quarter from Q3.
Bottom Line: Real consumer spending growth could still have a 5-handle in Q4, assuming some advance in December (which is possible given the surprising upturn in consumer confidence this month). But waning government support and high inflation are starting to counter the thrust from a stockpile of savings and rising employment, wages and wealth. Meantime, business equipment spending looks to have rebounded strongly after pulling back in Q3. Due to Omicron, there is some downside risk to our 5.5% call for Q4 GDP growth, with the full weight of restrictions, cancellations, closures, and anxiety likely to bear down on Q1.