Personal Incomes Rise, Spending Strongest in Over 2 Years, Spread Between Consumer Present Situation/Expectations Largest Since After Hurricanes in 05

- Personal Income for November rose .4% versus estimates of a .5% increase and a .2% gain in October.

- Personal Spending for November rose 1.1% versus estimates of a .7% gain and an upwardly revised .4% increase in October.

- The PCE Core for November rose .2% versus estimates of a .2% gain and a .2% increase in October.

- Final Univ. of Mich. Consumer Confidence for December rose to 75.5 versus estimates of 74.5 and a reading of 74.5 in November.

BOTTOM LINE: Consumer spending in the US rose in November by the most in more than two years as incomes grew and shoppers took to the streets early, Bloomberg reported. The Core PCE, the Fed’s preferred inflation gauge, rose 2.2% year-over-year in November, the same as in March and below the 20-year average of 2.4%. Adjusted for inflation, personal spending rose .5%, the most this year. Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, rose .6%. Purchases of non-durable goods rose .6% and purchases of services rose .5%. I continue to believe consumer spending will remain resilient over the intermediate-term as Americans’ net worth is at record levels. As well, unemployment remains low by historic standards, wage growth is very strong, most interest rates remain very low and stocks remain near record highs.

Consumer confidence finished December slightly higher than initially estimated, Bloomberg reported. The Expectations component of the index came in at 65.6. However, the Current Conditions component, which reflects Americans’ perception of their current financial situation and whether it is a good time to buy big-ticket items like cars, came in at 91. The last time the spread between the two was this large was in September and October of 2005, right after historic hurricanes ravaged the Gulf coast. The S&P 500 rose 13.5% over the ensuing 7 months. Before that, the last time the spread between the two was as large as it is now was July 1993, right after US GDP growth had fallen from 4.6% to .5% during 1Q 1993. The S&P 500 rose 10.8% over the next 9 months on its way to huge gains in subsequent years.