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 The outlook for consumer spending, which accounts for more than
two-thirds of economic activity, got a lift from other data on
Friday showing consumer sentiment nudged up in early December.
"It dismisses any concerns of a potential slump in household
spending after some weakness in the last few months. Not that there
is much doubt any more, but this supports the case for a rate hike
by the Fed next week," said Steve Murphy, U.S. economist at Capital
Economics in Toronto.
Retail sales excluding automobiles, gasoline, building materials and
food services increased 0.6 percent after gaining 0.2 percent in
October, the Commerce Department said. These so-called core retail
sales correspond most closely with the consumer spending component
of gross domestic product.
Overall retail sales, however, gained only 0.2 percent as automobile
sales fell and cheaper gasoline weighed on receipts at service
stations. Retail sales rose 0.1 percent in October.
Consumer spending slowed in September and October, despite a
tightening labor market, which is lifting household income.
Better income prospects are helping to prop up consumer sentiment.
In a separate report, the University of Michigan's consumer
sentiment index rose to 91.8 early this month from a reading of 91.3
in November.
Consumers' attitudes toward purchases of major household items were
the strongest since 2005, though they were less enthusiastic about
buying automobiles than in November.
"Consumer sentiment remains elevated ... That speaks well of the
current consumer mindset and bodes well for stronger consumer
spending in the coming quarters," said Jim Baird, chief investment
officer at Plante Moran Financial Advisors in Kalamazoo, Michigan.
The increase last month in discretionary spending suggested a fairly
busy start to the holiday shopping season. It supports expectations
that the Fed will raise its benchmark overnight interest rate from
near zero when policymakers conclude a two-day meeting next
Wednesday, despite weak inflation. The U.S. central bank has not
raised rates since June 2006.
U.S. financial markets were little moved by the data as investors
kept a wary eye on crude oil prices, which hit a seven-year low.
U.S. stocks were trading lower, while prices for U.S. government
debt rose. The dollar was lower against a basket of currencies.
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FOURTH-QUARTER GDP ESTIMATES RAISED
In another report, the Commerce Department said retail inventories
excluding autos increased 0.4 percent in October, suggesting
inventories could be less of a drag on fourth-quarter growth than
previously thought. That, however, implies inventories could weigh
on output in early 2016.
The strong gain in core retail sales last month and October's rise
in retail inventories ex-autos prompted economists to raise their
fourth-quarter growth estimates by as much as three-tenths of a
percentage point to as high as a 2.1 percent annual rate.
The economy grew at a 2.1 percent pace in the third quarter.
However, a report on Thursday showed less spending on services and
software than had been assumed, suggesting the third-quarter GDP
growth estimate could be lowered when the government publishes its
second revision later this month.
In a fourth report, the Labor Department said its producer price
index advanced 0.3 percent last month after falling 0.4 percent in
October. But the PPI declined 1.1 percent in the 12 months through
November after sliding 1.6 percent in October.
November marked the 10th straight 12-month decrease in the index.
Dollar strength and continued declines in oil prices amid a glut and
slowing global growth have dampened price pressures, leaving
inflation running persistently below the Fed's 2 percent target.
"We maintain our conviction that dollar appreciation will weigh on
the prices of core goods through the middle of next year," said Rob
Martin, an economist at Barclays in New York.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)
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