Implications: The American consumer is still spending. "Real" (inflation-adjusted) consumer spending was up 0.2% in November and is up 1.7% from a year ago. This is not a consumer "boom" by any stretch of the imagination, but real spending is at a record high and continues to move higher. We think consumer spending will continue to grow at a moderate pace. Although incomes were up only slightly in November, the underlying trend is consistent with growing purchasing power. Real personal income excluding government transfer payments is up 2.2% from a year ago. Private-sector wages and salaries are up 4.1% from a year ago, which is faster than inflation. In addition, consumer spending is being supported by the large reduction in households' financial obligations the past few years. Recurring payments like mortgages, rent, car loans/leases, as well as other debt service, are now the smallest share of after-tax income since 1993. On the inflation front, overall consumption prices are up 2.5% in the past year. However, the Federal Reserve is focused on "core" inflation, which excludes food and energy. These prices are up 1.7% from a year ago, right in the middle of the Fed's target range of 1.5% to 2%. But, given the loose stance of monetary policy, we expect inflation to get worse in the year ahead, both overall and for the core.
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Posted on Friday, December 23, 2011 @ 10:19 AM
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