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Consumer, business spending point to slower U.S. growth

Tags: U.S. GDP

U.S. consumer spending was tepid in November and a gauge of business investment plans fell for a second month, pointing to some loss of momentum in the economy as the year ends.

The Commerce Department said on Friday consumer spending ticked up 0.1 percent after rising by the same margin in October. Economists had expected spending, which accounts for two-thirds of U.S. economic activity, to rise 0.3 percent.

In another report, the department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, fell 1.2 percent last month after declining 0.9 percent in October.

While the reports suggest some slowing in activity, they are unlikely to change perceptions that economic growth will top 3 percent in the current quarter after a 1.8 percent pace in July-September, boosted in part by a rebound in inventories.

The tepid consumer spending is in stark contrast with robust Black Friday business reported by retailers.

When adjusted for inflation, spending rose 0.2 percent last month after a similar gain in October. The government on Thursday revised down third-quarter consumer spending growth to a 1.7 percent annual pace from 2.3 percent because of a slump in spending at hospitals.

Income ticked up 0.1 percent last month, the weakest reading since August, after increasing 0.4 percent in October. Last month's increase was below economists' expectations for a 0.2 percent rise.

Taking inflation into account, disposable income was flat after rising 0.3 percent in October.

"The lack of real income growth really raises questions as to what is going to happen to the economy in the first quarter," said Mark Vitner, senior economist at Wells Fargo Securities in Charlotte, North Carolina.

The saving rate dipped to 3.5 percent last month from 3.6 percent in October. Savings slowed to annual rate of $400.9 billion from $419.1 billion the prior month.

The report showed subsiding inflation pressures, which should help to support spending.

A price index for personal spending was flat last month after falling 0.1 percent in October. In the 12 months through November, the PCE index was up 2.5 percent, the smallest rise since April. That followed a 2.7 percent increase in October.

A core inflation measure, which strips out food and energy costs, edged up 0.1 percent last month after a similar gain in October. In the 12 months through November, core PCE rose 1.7 percent after increasing 1.7 percent in September.

But the economy continues to show resilience in the face of slowing global demand. New orders for long-lasting manufactured goods jumped 3.8 percent after being flat in October.

Excluding transportation, orders rose 0.3 percent after rising 1.5 percent in October. Durable goods range from toasters to big-ticket items such as aircraft which are meant to last three years and more.

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