Consumer spending remained strong during the holiday season despite elevated prices

By Alicia Wallace, CNN

(CNN) — Consumers continued to ramp up their spending as the holiday shopping season kicked into high gear in November, but inflation continued to bite, new data showed Thursday.

A shutdown-delayed report from the Commerce Department showed that spending rose 0.5% from October, above economists’ expectations for a 0.4% gain.

Notably, nearly half of the month’s spending increase came in two categories: health care and energy (including gasoline).

When adjusted for inflation, consumer spending rose 0.3%.

Despite a weakening job market, sour sentiment and high uncertainty, consumer spending hasn’t faltered. Economists have noted that this could be a function of an increasingly imbalanced environment, or K-shaped economy, where high-wealth individuals are seeing continued gains and driving the bulk of the spending.

While it’s hard to tease out the effect of the K-shaped dynamic in the latest data, Thursday’s report also showed that strong spending could soon run out of steam, said Oliver Allen, senior US economist at Pantheon Macroeconomics.

“I think the thing that’s more striking in this report is just how flimsy the support for that growth is,” he said. “Income growth now is looking really, really weak.”

In November, income rose 0.3% and just 0.1% after taxes. The savings rate (savings as a percentage of disposable income) dropped to 3.5%, the lowest since October 2022.

The report also showed that inflation remained stubbornly higher than normal, according to the shutdown-delayed report that also included previously unreleased data for October.

The Personal Consumption Expenditures price index — the inflation gauge the Federal Reserve uses for its 2% target rate — rose 0.2% on a monthly basis, which brought the annual rate to 2.8%, unchanged from the September rate that was reported last month.

Consensus forecasts called for inflation to rise 0.2% from October and 2.8% for the year ended in November, according to FactSet consensus estimates.

The underlying inflationary trends remained sticky and stubborn as well. When excluding food and energy costs, which tend to be more volatile, the core PCE price index rose by 0.2% for the fifth month in a row. On an annual basis, the core PCE index rose 2.8% (matching the last reported rate for September).

Thursday’s Personal Income and Outlays report is the latest in a line of critical economic data to be heavily disrupted by the 43-day government shutdown that lasted the entirety of October through the first 12 days of November.

Statistical agencies were unable to properly collect and process data during that period, which resulted in incomplete or distorted data. As such, the October and November Personal Income and Outlays reports (originally scheduled for release on November 26 and December 19) were combined into one release.

Because of the lengthy delay, the data may appear stale; however, the report includes a compilation of data from a wide swath of statistical agencies to provide a comprehensive look at Americans’ earnings, their spending habits, their savings as well as how prices are shifting for a wide variety of goods and services.

Still, Thursday’s report came with several caveats: Because the full suite of Consumer Price Index data couldn’t be collected or produced for October, the Commerce Department’s Bureau of Economic Analysis averaged those affected categories for September and November to get the October data.

In October, spending rose 0.5%, a slight acceleration from September’s 0.4% rate. The PCE price index increased 0.2% on a monthly basis with the annual rate dipping slightly to 2.7% for the 12 months ended in October.

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