As 2015 Starts, the American Consumer Is Back.

http://www.bloomberg.com/news/2014-12-23/consumer-spending-beats-forecast-as-u-s-gasoline-prices-drop.html

The American consumer is back, recharging the U.S. economic expansion.

Households splurged on new cars, appliances, televisions and clothing as spending climbed 0.6 percent in November, beating the median forecast of economists surveyed by Bloomberg, according to figures from the Commerce Department issued today in Washington. The economy grew at the fastest pace in 11 years, another report showed.

“We have very solid momentum entering 2015,” said Michael Gapen, the New York-based chief U.S. economist for Barclays Plc. “Labor markets are doing better, the consumer has a more favorable outlook for the economy and their own incomes, and they’re acting on it.”

The biggest employment gains since 1999 and the lowest gasoline prices in five years are giving Americans reason to believe the economic expansion is finally shaking off the vestiges of the recession. A sustained pickup in growth would help stabilize a global economy struggling to find ballast as Europe flounders and emerging markets cool.

Gross domestic product grew at a 5 percent annualized rate from July through September, the biggest advance since the third quarter of 2003 and up from a previously estimated 3.9 percent, according to revised Commerce Department figures.

Stocks rose, sending the Dow Jones Industrial Average above 18,000 for the first time, as the reports boosted confidence in the economy. The Standard & Poor’s 500 Index climbed 0.2 percent to 2,082.17 at the close in New York.

Bloomberg Survey

The November increase in spending followed a 0.3 percent October gain that was larger than previously estimated, according to the Commerce Department. The median forecast of 76 economists in a Bloomberg survey called for a 0.5 percent rise.

The report also showed incomes advanced 0.4 percent last month, the most since June, paced by a bigger gain in wages and salaries as hiring picked up.

Household purchases, which account for almost 70 percent of the economy, rose at a 3.2 percent annual pace in the third quarter, compared with a previously reported 2.2 percent, today’s GDP report showed. The revisions reflected stronger spending on health care, recreation and financial services than previously estimated. Outlays on durable and non-durable goods were also revised up.

“Consumer spending in particular looks like it’s on a pretty good track right now,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “Energy prices are down, labor markets have good momentum, so we’re in pretty good shape heading into 2015.”

Auto Sales

Demand for automobiles remains a bright spot. Cars and light trucks sold at a 17.1 million annualized rate in November, according to data from Ward’s Automotive Group. In August, the rate was 17.5 million, the most since January 2006.

“The average American consumer has a little more spending money at this gas rate than they had before,” Thomas Folliard, chief executive officer of CarMax Inc. (KMX), a seller of used automobiles, said on a Dec. 19 earnings conference call with analysts. “That’s a positive for people’s outlook.”

Spending on non-durable goods rose 1 percent after adjusting for inflation, the most since September 2013, reflecting gains at clothing retailers and service stations, today’s report showed. That means that cheaper gasoline is prompting Americans to drive more.

It’s also freeing up money for people to spend elsewhere. Regular gasoline at the pump sold at an average $2.38 a gallon as of Dec. 22, down $1.32 from a high this year in April, according to AAA, the biggest U.S. auto group.