Consumer spending strong in November

Picked from reuter on 12/21:

Consumer spending rose at the fastest rate in more than two years in November and prices also climbed sharply, according to a government report on Friday that showed the economy on firmer ground than many had believed.

Adding to a picture of some resilience in the face of the housing downturn and a credit squeeze, consumer sentiment turned up in late December from mid-month even though it was down for the third month in a row.

The Commerce Department said consumer spending jumped 1.1 percent in November, well ahead of forecasts on Wall Street, while personal income rose 0.4 percent.

At the same time, consumer prices moved up 0.6 percent, the biggest gain since September 2005 when energy prices shot up in the wake of Hurricane Katrina. Prices rose a heady 3.6 percent from a year earlier, the highest since October 2005.

Stock prices climbed as investors were heartened by corporate news and continued strong consumer spending, a mainstay of the U.S. economy, which many had worried could suffer due to the housing downturn. The Dow Jones industrial average surged 205 points, or 1.6 percent, to close at 13,450.

Wall Street's gains drew investors away from safe-haven government debt, helping to drag 10-year benchmark notes down 30/32 in price, raising the yield to 4.17 percent.

The implied prospects for a rate reduction in January embodied in futures contracts slipped to as low as 82 percent from 92 percent late on Thursday.

People have been too gloomy on the consumer," said Stephen Gallagher, U.S. chief economist at Societe Generale in New York "There are a lot of headwinds like housing and gasoline prices but the consumer keeps on spending."

Real spending, which adjusts for inflation, rose 0.5 percent in November, the highest since December 2006.

Separately, U.S. consumer sentiment brightened in late December but soured for the month as a whole, leaving sentiment near its lowest since the aftermath of Hurricane Katrina in 2005, the Reuters/University of Michigan Surveys of Consumers index of confidence showed on Friday.

The index edged up to 75.5 in late December from a mid-December reading of 74.5, slightly above economists' median forecast for a reading of 74.9, but down from November's reading of 76.1.

The late-December strength was centered on an improvement in longer-term economic prospects, but the near-term outlook was still quite pessimistic, the report said.

Consumers held very negative assessments of their personal financial situation, especially lower income households. Buying plans remained subdued, even among upper income households.

Overall, the data are consistent with a growth rate in personal consumption expenditures of just 2 percent in 2008, with significantly weaker growth of about 1 percent in the first quarter, according to Richard Curtin, the director of the consumer survey.

The U.S. economy appears headed for a period of slower growth at the end of 2007 and into the early part of 2008, and the Federal Reserve has lowered interest rates a cumulative percentage point to 4.25 percent since September as an insurance against the slower period.

Amplifying worries about slower growth, banks have become nervous about lending to one another over fears of hidden exposures to mortgage loans unlikely to be repaid.

Even though inflation has moderated from elevated levels earlier this year, Friday's price data adds to evidence of rising price pressures last month from climbing energy and commodity prices and the weaker dollar, which has boosted the cost of imported goods.

p/s:It seem like dollar weaker is happening as predicted by Lester Thurow.