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American consumers stepped up their spending last month, a good sign for the holiday shopping season.

The Commerce Department said Friday that consumer spending rose a sharp 0.6% from October, outpacing a 0.3% increase in personal income. As a result, the savings rate fell to 2.9% of after-tax income in November, lowest since November 2007.

The numbers bode well for the holidays and for the overall economy: Consumer spending accounts for about 70% of U.S. economic output.

Spending on both goods and services rose in November, led by increases in purchases of recreational goods, vehicles electricity and gas.

The savings rate has been falling steadily since February when it was at 4.1%.

“The saving rate can’t fall forever,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a research note, “so income growth needs to pick up if consumers are to continue spending at their recent pace.”

The measure of inflation favoured by the Federal Reserve remained subdued, rising 1.8% in November from a year ago, 1.5% excluding volatile energy and food prices. Inflation is running below the Fed’s 2% annual target, but the central bank is still confident enough in the economy to have raised interest rates three times this year.

The overall U.S. economy has looked solid. Growth clocked in at an annual pace of 3.2% in the third quarter and 3.1% in the second. Unemployment has dropped to a 17-year 4.1%, helping boost consumer confidence.

Originally published on Advisor.ca
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