Consumer Spending Increases
Despite all sorts of financial worries including the current housing market mess consumer spending in November rose to its highest amount in over three years.
The Commerce Department reported that consumer spending increased by 1.1 percent in November, which is nearly three times the October gain. Some experts suggest that the gain reflected various promotional efforts by retailers such as heavy discounting and longer store hours a tthe start of the holiday shopping season.
The November increase was the largest one-month gain since a 1.2 percent rise in May 2004. Analysts had predicted a paltry 0.7 increase. Personal incomes were also on the upswing for November, rising by 0.4 percent, which is twice the October increase.
What consumers spend is watched closely because consumer spending accounts for tw0-thirds of total US economic activity. It is hoped that higher consumer spending can help stave off some of the other credit problems currently facing the nation.
In addition to higher consumer spending patterns the Federal Reserve is reducing interest rates in the hopes of jump starting some new credit lending by banks and other major institutions. Many of these lenders have cut back on new lending as they work their way through the current housing mortgge situations they are facing.
There is a down side to all this spending. What consumers are spending they are, of course, not saving. The nation’s savings rate fell into negative territory in November. This means that consumers spent all of their incomes and then either dipped into their personal savings or borrowed in order to finance the higher level of spending. Much of that borrowing may have come in the form of credit card spending which many experts agree may cause problems for some consumers when the bills begin to roll in the next year.