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Consumer spending up 1.1% last month

December 22, 2007|From Reuters

WASHINGTON — U.S. consumer spending rose at the fastest rate in more than two years in November and prices also climbed sharply, according to a government report Friday that showed the economy on firmer ground than many had believed.

Adding to a picture of some resilience in the face of the housing downturn and a credit squeeze, consumer sentiment turned up in late December from mid-month even though it was down for the third month in a row.

The Commerce Department said consumer spending jumped 1.1% in November, well ahead of forecasts on Wall Street, and personal income rose 0.4%.

At the same time, consumer prices moved up 0.6%, the biggest gain since September 2005, when energy prices shot up in the wake of Hurricane Katrina. Prices rose 3.6% from a year earlier, the highest since October 2005.

Core prices, which exclude food and energy costs, rose a more modest 0.2% but have increased 2.2% over the last 12 months, moving out of the 1%-to-2% range many Fed officials have described as their comfort zone.

"People have been too gloomy on the consumer," said Stephen Gallagher, U.S. chief economist at Societe Generale in New York. "There are a lot of head winds like housing and gasoline prices, but the consumer keeps on spending."

Real spending, which adjusts for inflation, rose 0.5% in November, the highest since December 2006.

A separate report Friday showed that U.S. consumer sentiment brightened in late December but soured for the month as a whole, leaving sentiment near its lowest since the aftermath of Hurricane Katrina in 2005.

The Reuters/University of Michigan index of consumer confidence edged up to 75.5 in late December from a mid-December reading of 74.5, slightly higher than economists' median forecast for a reading of 74.9 but down from November's reading of 76.1.

The late-December strength was centered on an improvement in longer-term economic prospects, but the near-term outlook was still quite pessimistic, the report said.

Consumers held very negative assessments of their personal financial situation, especially lower-income households. Buying plans remained subdued, even among upper-income households.

Even though inflation has moderated from elevated levels earlier this year, Friday's price data add to evidence of rising price pressures last month from climbing energy and commodity prices and the weaker dollar, which has boosted the cost of imported goods.

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