Consumer spending and personal income both decline in November

Income / Expenses: Consumer spending, the backbone of the U.S. economy, declined in November as COVID-19 cases accelerated across the country and dampened activity.

Consumer spending fell 0.4% in November after a revised 0.3% gain the month before, the government said on Wednesday. November’s drop was in line with economists’ forecasts gathered by MarketWatch.

Personal income fell 1.1% in November after a revised 0.6% drop the month before. This was driven by a decrease in government social benefits. Economists had forecast a decline of 0.3%.

Inflation: The 12-month increase in the PCE index, the preferred inflation gauge for federal reserves, slipped to 1.1% in November from 1.2% the month before. The base PCE rate which excludes food and energy remained stable at 1.4% on an annual basis.

What happened: Consumers cut back on spending on goods and services in November. There was a decrease in spending on clothing and automobiles. Restaurant takeout orders rose sharply, but spending on food and utilities fell in the month.

Wages and salaries, the largest contributor to income, rose 0.4% after gaining 0.7% in October. It was the smallest increase since the lockdown in April.

But aggregate income was dragged down by corporate income as government loan programs ended and other social programs expired.

With income falling more than spending, the savings rate slipped to 12.9% in November from 13.6 the previous month.

The big picture: Economists believe the surge in COVID-19 cases is causing the economy to slow down. Retail sales in November were also weak. There is some hope that the latest economic relief package will breathe new life into the economy.

What do they say? The economy enters 2021 with very little momentum and the urgency to adopt the Covid relief plan cannot be underestimated. Without it, consumer spending growth could flirt with zero in the first quarter compared to our December baseline forecast of 0.5% (or 2% annualized) which included a $ 1 trillion fiscal stimulus package, a. said Gregory Daco, chief US economist at Oxford Economics.

Market reaction: Shares were higher on Wednesday as the market examined weak data and focused on the good news from vaccines. The Dow Jones Industrial Average DJIA index, + 0.69%, rose 215 points at the end of the afternoon.

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