The U.S. economic recovery story just keeps getting more exciting.
Last Friday, we learned that GDP grew at a 4.1% rate in Q3.
Today, we got confirmation that growth continues to be robust in Q4.
Personal spending grew 0.5% in November, and October’s growth rate was revised up to 0.4% from an earlier reading of 0.5%.
“Today’s personal income data shows consumers bought a proverbial ton of services from companies in October and November,” said Bank of Tokyo-Mitsubishi’s Chris Rupkey. “This means, hang on to your hats, and please check my maths, real consumer spending is running 3.6% in the fourth quarter of 2013. It has not run this fast since way back in 2010. Consumers are spending more now than they did in 2011 and 2012 when Obama and the Republicans gave them a payroll tax holiday, cutting the tax rate from 6.2 to 4.2 per cent for two years.”
“Current quarter real GDP growth looks to be running near 4%,” tweeted Deutsche Bank’s Joe LaVorgna after the report. “No wonder the unemployment rate is dropping so fast.”
However, that same report showed that core PCE, which is the Federal Reserve’s preferred measure of inflation, is up just 1.1% year-over-year. This is well below the Fed’s long-term target of 2%.
“Economics is going to have a new puzzle to contemplate,” said Rupkey.
Indeed, the story used to be that the economy was growing to slowly and that too much stimulus risked inflation.
Nowadays, we’re talking about the economy getting stronger, yet prices can’t seem to get off the ground.
“While the likely rebound in consumer spending in Q4, the previous recuperation of income, and recent solid employment gains will provide policymakers with encouragement that the household sector is gaining strength, the continued softness of PCE inflation will provide reason for caution,” said Barclays Michael Gapen.
Still, the resilience of the American consumer is something worth celebrating.
“Net net, consumers are spending at the fastest rate this quarter than any time since 2010,” reiterated Rupkey. “That should tell you something. Washington headwinds of uncertainty? Forget about it. With numbers like these, 2014 is shaping up to be the better tomorrow we have wanted to see ever since the recession ended almost five years ago. Bet on it.”
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