US consumer, business spending point to slower growth

US consumer spending was tepid in November and a gauge of business investment plans fell for a second straight month, pointing to some loss of momentum in the economy. But other data on Friday added to signs that a tentative recovery in the housing market was under way, which should help to support growth.
---- Durable goods orders up 3.8 pct on aircraft
---- Gauge of business spending falls for second month
---- New home sales hit seven month high, supply dwindles
Consumer spending ticked up 0.1 percent last month, the Commerce Department said on Friday, after rising by the same margin in October. Economists had expected spending, which accounts for two-thirds of US economic activity, to rise 0.3 percent. When adjusted for inflation, spending rose 0.2 percent last month after a similar gain in October.
In another report, the department said non-defence capital goods orders excluding aircraft, a closely watched proxy for business spending, fell 1.2 percent last month after declining 0.9 percent in October. Shipments of these so-called core capital goods, which go into calculations of US gross domestic product, also fell.
The reports tempered expectations for fourth-quarter economic growth, although many analysts still expect it to top a 3 percent annual rate after a 1.8 percent third-quarter pace. "It appears we have a little more consumer spending but less investment spending than we thought, however, we expect those two developments to cancel each other out," said John Ryding, chief economist at RDQ Economics in New York.
"At this point we still look for real GDP growth in the fourth quarter of around three percent." US stocks opened up modestly, while prices for US government debt trimmed losses. The dollar fell against the euro. The tepid consumer spending data stood in stark contrast with the robust sales reported for Black Friday, the traditional start to the holiday shopping season. Some retailers have been forced to offer heavy discounts to get shoppers to spend.
"Retail has been very promotional and consumers have been very value-conscious," Best Buy Co CEO Brian Dunn said on a conference call last week. Income ticked up 0.1 percent, the weakest reading since August, as wages and salaries fell. Disposable income was flat. A strengthening in the labour market has offered some hope income growth will quicken, but analysts said the report augured poorly for consumer spending at the start of the new year.
"The lack of real income growth really raises questions as to what is going to happen to the economy in the first quarter," said Mark Vitner, senior economist at Wells Fargo Securities in Charlotte, North Carolina. While households may be spending less, they are starting to show more interest in buying houses. Sales of new single-family homes rose 1.6 percent in November to a seasonally adjusted 315,000-unit annual rate.
That was the highest in seven months. In addition, the months' supply of houses on the market dropped to a 5-1/2 year-low, further signs of a budding recovery. Data this week showed a rise in sales of previously owned homes and surge in housing starts, but further progress will depend on the health of household finances.
Already, consumers have been dipping into their savings to prop up their spending. The saving rate, the percentage of disposal income socked away, dipped to a 3.5 percent annual rate last month from 3.6 percent in October. On the bright side, the report confirmed an easing in inflation, which should help to support spending.
A price index for personal spending was flat last month after falling 0.1 percent in October. In the 12 months through November, the PCE price index was up 2.5 percent, the smallest rise since April. A core inflation measure, which strips out food and energy costs, edged up 0.1 percent last month after a similar gain in October. In the 12 months through November, it was up 1.7 percent after increasing 1.7 percent in October.
But the economy continues to show resilience in the face of slowing global demand. New orders for long-lasting manufactured goods jumped 3.8 percent after being flat in October. Excluding transportation, orders rose 0.3 percent after rising 1.5 percent in October. Durable goods range from toasters to big-ticket items such as aircraft which are meant to last three years and more.