Personal Income Data Soft, Spending Solid

November was a mixed month for the consumer as personal income managed only a lower-than-expected 0.2 percent gain which is offset, however, by a solid and higher-than-expected 0.4 percent rise for consumer spending.

Price data are subdued, rising 0.1 percent for both the PCE and core PCE with year-on-year rates now both below the Federal Reserve's 2 percent target, at 1.8 and 1.9 percent respectively.

Looking first at the consumption side of the data, the rise in spending was driven by a strong 0.9 percent increase in durable goods that follows a 0.8 percent rise in October with both speaking strongly to health in discretionary demand. Spending on nondurables, reflecting lower gasoline prices, rose a modest 0.2 percent in November with spending on services, by far the largest component, rising 0.4 percent.

The income side is soft and includes only a 0.2 percent rise for the wages and salaries component. Inflation-adjusted disposable income, an important reading on consumer health, also rose 0.2 percent and down from 0.3 percent in October. The savings rate edged 1 tenth lower to a still healthy 6.0 percent.

Putting income aside, where lack of traction despite high levels of employment is the great puzzle of the expansion, today's report is very favorable and points to a third straight quarter of consumer-driven strength for the economy.