U.S. consumer spending strengthening in boost to economy

U.S. consumer spending gathered momentum in November as households bought furniture, electronics and a range of other goods, which could further allay fears of a significant slowdown in the American economy even as the outlook overseas continued to darken.

The upbeat data from the Commerce Department on Friday bolstered expectations that the Federal Reserve will raise interest rates for a fourth time this year at its Dec. 18-19 policy meeting, despite moderating inflation and tighter financial market conditions.

It also stood in stark contrast to reports from China showing a dramatic fall-off in retail sales in the world’s second-largest economy and from Europe where a key measure of business activity expanded at its slowest rate in four years.

The U.S. central bank has hiked rates three times this year.

“Today’s report shows Fed officials consumers just aren’t confident, they are also putting their money where the mouths are and buying enough goods to keep the economy humming,” said Chris Rupkey, chief economist at MUFG in New York.

Retail sales excluding automobiles, gasoline, building materials and food services surged 0.9 percent last month after an upwardly revised 0.7 percent increase in October.

These so-called core retail sales, which correspond most closely with the consumer spending component of gross domestic product, were previously reported to have gained 0.3 percent in October. Economists polled by Reuters had forecast core retail sales rising 0.4 percent last month.

Clothing and clothing accessory stores were up 4.1 percent year-over-year but down 0.2 percent month-over-month seasonally adjusted, while sporting goods stores were down 7.8 percent year-over-year but up 0.4 percent month-over-month seasonally adjusted.

November’s increase in core retail sales and upward revisions to October’s data suggested a brisk pace of consumer spending in the fourth quarter. Consumer spending, which accounts for more than two-thirds of the U.S. economy, increased at a 3.6 percent annualized rate in the July-September quarter.

A sharp sell-off on Wall Street and partial inversion of the U.S. Treasury yield curve had stoked fears of a recession. But worries over the economy’s health were eased on Thursday after government data showed the number of Americans seeking unemployment benefits fell back to a near 49-year low last week.

A Reuters poll released on Thursday showed economists now see the risk of recession in the next two years at 40 percent, up from 35 percent last month.

In the wake of the strong core retail sales numbers, economists bumped up estimates for fourth-quarter gross domestic product growth to as high as a 3.0 percent rate from around a 2.4 percent pace.

The economy grew at a 3.5 percent pace in the July-September period. Spending is being boosted by a tightening labor market, which is starting to spur faster wage growth, lower taxes and moderate inflation. It remains strong despite the sharp stock market losses.

The dollar hit a 19-month peak against a basket of currencies. U.S. Treasury prices rose, while stocks on Wall Street fell on fears the global economy was slowing.