The U.S. November Personal Income report shows huge consumption but also reflects the effects of higher prices in faltering real disposable income and a lack of savings.

November Personal Income printed up 0.4%, Personal Consumption Expenditures were up a huge 1.1%. But PCE core prices posted up 0.2% for a 2.2% gain over the year. The latter is a jump from the prior reading of 1.9% that certainly will leave the Fed uncomfortable; it was last higher at 2.3% in March 2007 but reversed.

The PCE gain was the biggest since a 1.2% gain in May 2004 but was reduced to a mere 0.5% in real terms as prices jumped. Real spending on durable goods surged 0.6% after dropping in October. Real spending also jumped in services and nondurables.

Real PCE for October-November stands at 4.3% SAAR above the third quarter average, suggesting the consumer will bolster Gross Domestic Product growth unless December sales falter.

Private wages and salaries were up $36 billion after a much more modest showing of $1.3 billion in October, reflecting jumps in manufacturing and services income. This suggests consumers have the wherewithal to spend ahead. Proprietors income, rents, and income receipts were all higher.

The savings rate was down 0.5%, its first negative since summer 2006 and its lowest since a 2.3% drop in August 2005. This shows consumers borrowed or sold assets in order to keep spending. One reason was rising energy prices: real disposable personal income was down 0.3% in its largest drop since April. This follows a 0.2% drop in October and marks the fourth down month in 2007. One has to go back to the recession year of 2001 to see four down months of Disposable Income in the same calendar period.

— Market News International

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