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Personal income grew 0.4% month-on-month (m/m) in November, an acceleration from October’s 0.3% gain and in line with market expectations.

Accounting for inflation and taxes, real personal disposable income rose 0.4% m/m, up from 0.3% previously.

Personal consumption expenditures rose 0.2% m/m, an acceleration from the downwardly revised 0.1% gain recorded in October, but in line with market expectations. Spending in real terms also grew by 0.3%, up from 0.1% previously.

Spending on services was up by 0.5% m/m, while goods spending declined by -0.2% m/m. Within services, the largest contributors to the increase were housing and utilities and food services and accommodations. Within goods, the leading contributor to the decrease was gasoline and other energy goods.

Headline personal consumption expenditure (PCE) inflation declined by -0.1% on the month (its first decline since April 2020). On a year-on-year (y/y) basis the measure decelerated to 2.6% from 2.9%. The core PCE price deflator (which is the Fed’s preferred measure of inflation) held steady at 0.1% on a monthly basis and decelerated from 3.4% to 3.2%  annually.

The personal savings rate ticked up in November to 4.1% from the upwardly revised 4.0% reading in October.

Key Implications

Two months into the final quarter of the year and the U.S. consumer continues to show incredible resilience. Despite sustained headwinds, a rise in income growth has helped to provide a boost to consumer’s spending power. The holiday season in particular may have given consumers an extra impetus to spend, thereby contributing thus far to decent spending growth. The lift, however, is likely to fade heading into the New Year. All told, we anticipate that real consumption expenditure for Q4 will clock in at around 2.3% (q/q annualized) –  a step-down from the stellar 3.1% growth posted in Q3 and marginally above our most recent forecast (see forecast).

The snapshot of inflation presented in today’s report  is sure to be welcomed by the Fed. The deceleration in both annual headline and core PCE inflation is good news. The outright decline in the monthly headline figure was even better. Today’s report adds support to the central bank’s decision to hold rates steady at their final meeting of the year (see FOMC). While markets continue to favor rate cuts as early as March, we don’t see the first cut happening until sometime in the summer, as progress on the inflation front is likely to stall over coming months given the imbalances still present in the labor market.

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