US consumers in spending mood

Core retail sales increase 0.6% in November as shoppers open wallets to spend over the holidays

US consumers showed some muscle in November at the start of the holiday shopping season, suggesting enough momentum in the economy for the Federal Reserve to raise interest rates this week for the first time in nearly a decade.

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, US economist at Capital Economics in Toronto.

Retail sales excluding automobiles, gasoline, building materials and food services increased 0.6 per cent after gaining 0.2 per cent 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 per cent as automobile sales fell and cheaper gasoline weighed on receipts at service stations. Retail sales rose 0.1 per cent in October.

Consumer spending slowed in September and October, despite a tightening labour market.

Separate report

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.

“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.