Business, consumer spending surged in November

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(MoneyWatch) The U.S. economy is ending the year with a flurry of favorable numbers: Business and consumer spending, income and personal savings all went up in November.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for investment plans, jumped 2.7 percent last month, gaining for the second month in a row, according to the Commerce Department. This was a huge improvement on the 0.3 percent rise expected by many economists. The October numbers also improved, revised from 2.9 percent to 3.2 percent.

In a separate paper Commerce reported that consumer spending rose in November by the most in three years. Inflation-adjusted consumer spending rose 0.6 percent, while after-tax income climbed 0.8 percent when adjusting for changes in prices. This last item is particularly encouraging because income has been stagnant throughout the recovery.

Wages and salaries rose $41 billion in November. Sandy had reduced wages at an annual rate of $18 billion in October. Spending had fallen 0.1 percent in October compared with September. It's clear that consumers are determined to live within their means during uncertain economic times. With income rising faster than spending, the saving rate rose to 3.6 percent of income in November. That was up from 3.4 percent in October.

These numbers follow yesterday's announcement that economic growth in the third quarter was up a very healthy 3.1 percent.

"Despite concerns about the fiscal cliff, businesses appear to have boosted spending at year-end," said Sal Guatieri, senior economist at BMO Capital Markets.

He said his forecast that the economy would grow at an annual rate of 1.5 percent in the October-December quarter might need to be revised higher.

Paul Ashworth, senior economist at Capital Economics, said that based on Friday's reports, he's revising up his estimate of growth for this quarter to an annual rate between 1.5 percent and 2 percent.

Despite all this it is clear that concerns about what the so-called "fiscal cliff" will or won't do to taxes and business in general is weighing heavily on consumers. Consumer sentiment dropped almost 10 points to 72.9 between the end of November and now, according to The Thomson-Reuters/University of Michigan consumer sentiment index released Friday. That is the lowest level since July

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