US consumer spending rose in November by the most in three years and a gauge of planned business spending jumped, signs that households and companies are shrugging off some of the fears tighter fiscal policy could cause a recession.
The Commerce Department today said inflation-adjusted consumer spending rose 0.6 per cent, while after-tax income climbed 0.8 per cent when adjusting for changes in prices.
Many economists think business and consumers are wary of automatic government spending cuts and tax increases scheduled to kick in early next year, a scenario known in Washington as the "fiscal cliff."
"The economy is holding in here at the end of the year despite the concerns about the fiscal cliff," said Gary Thayer, an economic strategist at Wells Fargo Advisors in St. Louis.
Economists have been expecting economic growth will slow in the fourth quarter as companies slow the pace at which they re-stock their shelves, but the data on spending suggests consumers are offsetting some of that drag.
Consumer spending grew at just a 1.6 per cent annual rate in the third quarter. Real spending declined in October, but November's gain was the strongest since August 2009.
That suggested purchases by consumers were not taking the hit many expected due to growing fears that going over the fiscal cliff will push the economy into recession. However, consumer confidence declined sharply in early December.
Last night, a Republican proposal for averting the fiscal cliff was abandoned, further eroding optimism that a deal would be reached quickly.
US stock index futures were sharply lower after the proposal was dropped.
Spending before taking into account changes in prices rose 0.4 per cent.
Reuters
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