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U.S. Personal Spending Climbs 0.5% Despite Modest Income Growth

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While the Commerce Department released a report on Monday showing that U.S. personal income rose by less than expected in the month of November, the report still showed that personal spending increased in line with estimates.

The report said personal income crept up by 0.2 percent in November after edging down by 0.1 percent in October. Economists had been expecting income to increase by about 0.5 percent.

Disposable personal income, or personal income less personal current taxes, inched up by just 0.1 percent in November following a 0.2 percent in drop in the previous month.

At the same time, the Commerce Department said personal spending rose by 0.5 percent in November following a 0.4 percent increase in October. The increase in spending matched the expectations of economists.

Real spending, which is adjusted to remove price changes, also increased by 0.5 percent in November after climbing by 0.4 percent in October.

With spending rising at a faster rate than income, personal saving as a percentage of disposable personal income dropped to 4.2 percent in November from 4.5 percent in October.

Peter Boockvar, managing director at the Lindsey Group, said, "If we don't include the drop in January after the spike in December '12 related to tax positioning, the Savings Rate is matching the lowest since August '08."

"Bottom line, relying on a draw down in the savings rate to sustain spending only lasts so long and it's why income growth is the vital missing component to this recovery," he added.

The Commerce Department also said its reading on core consumer prices, which exclude food and energy prices, increased at an annual rate of 1.1 percent in November, unchanged from the previous month.

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