US DATA: Consumer Remains Strong, But Services Demand Shows Signs Of A Slowdown

Spending growth remained steady in November, and while Incomes were robust, they cooled from an unusually strong October. While this was a solid report for the consumer, it was on the soft side of expectations, and there are signs that spending on services - which makes up the lion's share of PCE - is moderating.

• The rise in income / disposable income (both 0.3% M/M, 0.7% prior) understated the pickup in employee compensation (an 8-month high 0.6%).
• Spending's rise of 0.4% M/M (0.3% prior) reflected an acceleration in goods purchases (+0.8% from -0.1%), but services spending saw the slowest growth (0.2%, 0.6% prior) in 15 months.
• Real spending came in at 0.3% M/M, an acceleration from 0.1% prior, versus real disposable income growth of 0.2%, down from 0.5% prior (which was a 9-month high, leaving November's figure as closer to recent trends). The household savings ratio dipped to 4.4% from 4.5%, but these figures are often substantially revised so we take little short-term signal from them.
• These figures (and the corresponding price metrics) were on the soft side of expectations, but they should be put into the context of longer-term trends:
• Income growth is up 4.7% on a 3M/3M annualized basis, fastest since May 2024; real spending growth is up 3.6% on that basis - remaining well above the longer-run trend - with Y/Y at 2.9%. To put into context, Q3 GDP PCE printed 3.7%, and this is calculated on this basis, so there is no evident slowdown in consumption in Q4.
• If there is any worrying sign for the consumer in this report, it's in the composition of spending in real terms: goods (one-third of PCE) growing by an accelerating amount (5.9% 3M/3M ar, a 20-month high, and 3.4% Y/Y), but the more important services category showing some slowing signs (3M/3M 2.6%, slowest in 12 months, and Y/Y 2.7%, slowest in 8 months).