Consumer spending rises 0.4% in November, outpacing income growth

Getty ImagesPeople shop at the Macy's flagship store last month in New York City.

The numbers: Consumer spending grew faster than incomes in November, leading to an erosion in the savings rate, the Commerce Department said Friday.

Consumer spending rose 0.4% in November, in line with the MarketWatch forecast. However, spending in October was revised up to 0.8% from the prior estimate of 0.4%.

Incomes rose 0.2% after a 0.5% gain in October. This was below forecast of a 0.3% increase.

Inflationary pressures, as measured by Federal Reserve's preferred core PCE gauge, picked up a bit. The closely followed core rate that excludes food and energy inched up a notch to a yearly rate of 1.9%, the highest in three months. The year-over-year rate was 1.6% in November 2017, so there has been a modest-pick up over the past year.

The 12-month rate of headline inflation that includes energy prices, fell to 1.8%, the lowest reading since January.

What happened: Consumers are reaching for their credit cards to fund purchases this Christmas. The savings rate slumped to 6% in November, the smallest in more than five years. A year ago, the savings rate was 7.2%.

Wage growth moderated to a 0.2% gain in November from a 0.4% rise in the prior month.

Big picture: The data point to a strong holiday shopping season, which should translate into solid fourth-quarter gross domestic product. Consumer spending is expected to rise at only a slightly slower pace than the 3.5% rate in the prior three months.

Core inflation pressures are still shy of the Fed's 2% target, but not by much.

What they are saying? "The consumer will propel GDP growth again in the fourth quarter with business and residential fixed investment sluggish," said Mickey Levy, chief economist at Berenberg Capital Markets.

Market reaction: Stocks were higher in a choppy trading session. The Dow Jones Industrial Average DJIA, -1.81% up almost 125 points.