U.S. Household Expenditures Increase Marginally in November as Inflation Slows

U.S. household spending rose slightly in November, while inflation eased. The Federal Reserve raised interest rates to combat rapidly rising prices.

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Personal spending increased slightly in November, according to the latest data from the Commerce Department. Households boosted spending on services last month, offsetting a decrease in spending on goods, including autos. Overall, spending was up 0.1% from the previous month.
The personal-consumption expenditures price index—the Fed’s preferred gauge of inflation—rose 5.5% in November from a year earlier, a significant cooling from 6.1% in October. This is a welcome development for the Fed, which has been struggling to get inflation back to its target level of 2%.

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The core PCE-price index, which excludes volatile food and energy prices, rose 4.7% in November from a year earlier, compared with 5.0% in October.
The PCE-price index rose 0.1% in November from the prior month, compared with October’s 0.4% increase. Core prices rose 0.2% in November from the prior month, easing from October’s 0.3% increase.

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Veronica Clark, an economist at Citigroup Inc., said that while there is weakness in goods demand, the services sectors are still looking good. She said she will be watching to see how services spending and inflation play out last month, especially with holiday travel.
Consumer spending contributed to stronger than previously estimated third-quarter growth, the Commerce Department said Thursday. This is after two consecutive quarters of contraction.

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The labor market is still tight, with unemployment at 3.7%. However, some companies have announced layoffs in recent weeks. This has helped buoy consumers despite rapidly rising prices and the Fed’s aggressive pace of interest-rate increases.
Retail sales in November declined by 0.6% from the previous month, according to the Commerce Department. This is the largest monthly decline this year, and indicates that consumer spending may be cooling off during the holiday season.

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Shoppers reduced their spending on holiday-related purchases, home projects and cars in December, leading to a further decline in U.S. business activity, according to surveys released last week by S&P Global. However, inflationary pressures also eased during the month.
Kayla Bruun, an economic analyst at decision-intelligence company Morning Consult, said that lower-wage workers are being hit harder by inflation and are starting to pull back on spending.

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"Inflation is a big concern for consumers and is putting downward pressure on spending," she said. "Consumers are using up their savings buffers and are starting to feel the pinch."

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She also said the Fed is monitoring wage growth as it considers its next steps on inflation. The Fed approved an interest rate increase of 0.5 percentage points this month, and signaled plans to lift rates through the spring, though likely in smaller increments. Ms. Bruun said that there is a concern that the pace of wage growth will put a floor on how much prices will fall. Donna Goodrich, president of appliance and furniture store Top Furniture in Gorham, N.H., said holiday sales have been mixed, with good sales in November followed by a weaker December. In an effort to keep her delivery workers from leaving, Ms. Goodrich has boosted their pay twice this year.

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"The biggest challenges for 2022 will be labor and price increases," she said.
Mark Yonally, co-owner of Albany, N.Y., clothing store B. Lodge & Co., said customers have been shopping for gifts in recent weeks and he is hopeful that the buying will continue through Christmas Eve. He noted that many customers seem to be waiting until the last minute to do their shopping, so he is hopeful that business will remain strong through the end of the holiday shopping season.

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He said that they were having a good holiday season and that some seasons are spread out while others come all at the last minute.