Encouraging Signs on the Economy from Consumer Spending and Factory Goods

Showing some holiday cheer, consumers boosted their spending in November by the largest amount in four months, while the nation's manufacturers saw demand for big-ticket goods rebound.

The latest snapshot of consumer and business activity was contained in a pair of reports released by the Commerce Department on Friday, with encouraging signs for the economy.

One report showed consumers increasing their spending by 0.5 percent last month, up from a 0.3 percent gain and the most since July. Incomes — the fuel for future spending — rose a modest 0.3 percent for the second month in a row. The income and spending figures aren't adjusted for inflation.

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Another report showed that orders placed with factories for costly manufactured goods went up 1.9 percent last month. That was a turnaround from the 8.2 percent plunge registered in October.

The spending and income figures were just shy of economists' forecasts. They were expecting a gain of 0.6 percent in spending and a gain of 0.4 percent for income. The demand shown in the manufacturing report was stronger than the 1.5 percent gain economists were anticipating.

Together the reports suggest that the economic expansion is not in danger of fizzling out, despite strains from the deepening housing slump.

The ailing housing market was the main reason why economic growth slowed to a 2 percent pace in the late summer. As troubles linger from housing, more sluggish performances are expected in the months ahead.

Thus far, though, consumers seem to be holding up fairly well.

In November, consumers boosted spending on big-ticket "durable" goods — such as cars and appliances expected to last at least three years — by a strong 1.2 percent, the most since July. Spending on "nondurables" such as food and clothes, rose by a solid 0.7 percent, after a 0.6 percent cut the month before. Spending on services increased 0.4 percent, following a 0.6 percent rise.

Consumer spending is closely watched by economists because it is a major shaper of overall economic activity.

With spending growth outpacing income growth, Americans' personal savings rate — savings as a percentage of after-tax income — dipped to negative 1.0 percent in November, the worst showing since August.

In the manufacturing report, factories saw new orders rise in November for computers and communications equipment, as well as cars and airplanes. But demand for machinery, electrical equipment and primary metals, including steel, ebbed.

Manufacturers are having to deal with some fallout related to problems in the housing market as well as the struggling automotive industry.

There was some encouraging news Friday on the inflation front.

An inflation measure tied to the income and spending report showed "core" prices — excluding food and energy — moderated last month. These prices rose 2.2 percent over the last 12 months ending in November, an improvement from the 2.4 percent gain reported for the 12 months ending in October.

Even with the improvement, core inflation is still higher than the Fed would like.

Fed chairman Ben Bernanke and his colleagues, however, predict inflation will continue to ease as the economy slows to a more sustainable pace.

Given that, the central bank has felt comfortable holding interest rates steady since August. Economists believe the Fed probably will leave rates where they are well into next year.

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