U.S. consumer spending barely rose in November, while annual inflation increased at its slowest pace in 13 months, but demand is probably not cooling fast enough to discourage the Federal Reserve from driving interest rates to higher levels next year.
Slowing economic activity amid rising borrowing costs was also flagged by other data from the Commerce Department on Friday showing a modest gain in orders for locally manufactured capital goods last month. Shipments of these goods, which are a proxy for business spending on equipment, fell.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, edged up 0.1%. Data for October was revised up to show spending surging 0.9% instead of 0.8% as previously reported. Economists polled by Reuters had forecast consumer spending rising 0.2%. Outlays on services increased 0.7%, lifted by housing and utilities as well as financial services and insurance. They offset decreases in air transportation services.
The Fed last week hiked its policy rate by 50 basis points to a 4.25%-4.50% range, the highest since late 2007. Fed officials expect the rate to rise to between 5.00% and 5.25% next year, a level that could be sustained for a while. The personal consumption expenditures price index rose 0.1% last month after climbing 0.4% in October. In the 12 months through November, the PCE price index increased 5.5%. That was the smallest annual gain since October 2021 and followed a 6.1% advance in October.
Consumer prices rose less than expected for a second straight month in November. Consumers' one-year inflation expectations also moderated in December, strengthening views that price pressures peaked several months ago.
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