US consumer spending saw a solid increase in October and November, potentially maintaining the economy's trajectory for a third consecutive quarter of robust growth. Consumer spending, a significant contributor to economic activity, rose by 0.5% in both October and November, according to the Commerce Department's Bureau of Economic Analysis. This growth rate aligns with economists' predictions, despite the 43-day government shutdown that delayed the combined October and November data. The economy's performance in the third quarter was impressive, with a 4.4% annualized growth rate, following a 3.8% expansion in the April-June quarter. The Atlanta Federal Reserve forecasts a 5.4% GDP increase in the fourth quarter, primarily driven by consumer spending and a shrinking trade deficit due to President Trump's tariffs. However, these tariffs have led to higher prices for consumers, with higher-income households supporting spending, while lower- and middle-income households face limited purchasing power, creating a K-shaped economy. This spending disparity persisted in early January, with the Federal Reserve's Beige Book reporting stronger spending among higher-income consumers on luxury goods, travel, tourism, and experiential activities. The government shutdown's impact on inflation is notable, as it introduced a downward bias to prices in October and November. The government's inability to collect data for the Consumer Price Index and import prices reports during this period led to data gaps, affecting the November CPI and import prices reports. However, the Producer Price Index report for October was published, and the Personal Consumption Expenditures price indexes, monitored by the U.S. central bank, were calculated using data from the CPI, PPI, and import prices reports. The PCE price index increased by 0.2% in November, matching the previous month's gain, and climbed 2.8% in the 12 months through November. Excluding volatile food and energy components, the core inflation rate increased by 0.2% in November, rising 2.8% in the 12 months through November. December CPI data suggests a potential increase in core PCE, with estimates as high as 0.4%, translating to a year-on-year rise of 3.1%. The December PCE inflation data will be released on February 20, and the Federal Reserve is expected to maintain interest rates later this month.
