Key Points
- Strong demand drove November’s increase in U.S. consumer spending, which rose 0.4%.
- Core inflation rose 0.1%, marking the smallest monthly increase since May.
- The U.S. economy grew at a 3.1% annualized rate in the third quarter. Labor market strength and wage growth are supporting consumer spending.
- The Federal Reserve cut interest rates and forecast fewer reductions in 2025.
According to the Commerce Department, consumer spending in the United States increased by 0.4% in November, reflecting strong demand for various goods and services. This rise underscores the resilience of the U.S. economy, even as the Federal Reserve projected fewer interest rate cuts in 2025 than it had forecast in September.
The report offered positive signals on inflation, showing moderate monthly price increases. A key measure of underlying inflation posted its smallest rise in six months, though certain areas of stickiness persisted. Core personal consumption expenditures (PCE), which exclude volatile food and energy costs, rose by just 0.1%—the smallest increase since May. Annual inflation reached 2.4%, slightly up from October’s 2.3%, driven partly by the fading of low readings from last year.
Consumer spending, which accounts for over two-thirds of U.S. economic activity, was buoyed by increased purchases of motor vehicles, recreational goods, healthcare, and dining out. When adjusted for inflation, spending rose 0.3% after a 0.1% increase in October. Robust consumer demand propelled the economy to a 3.1% annualized growth rate in the third quarter, following 3.0% in the second quarter. Economists expect a modest slowdown in spending for the fourth quarter, with the Atlanta Federal Reserve forecasting GDP growth of 3.2%.
Labor market strength drives spending, with low layoffs and wage growth playing critical roles. Wages rose 0.6% in November, contributing to a 0.3% increase in personal income. Household savings remain a supportive factor, though lower-income households face financial pressures, while middle—and higher-income groups benefit from wage and wealth gains.
The Federal Reserve cut its benchmark interest rate by 25 basis points to 4.25%—4.50% this week, projecting only two rate reductions in 2025. This cautious approach reflects the economy’s ongoing resilience and persistent inflation concerns.