* U.S. real consumer spending up 0.6 percent in November
* Biggest gain in real spending since August 2009
* Gauge of business investment plans jumps 2.7 percent
* Consumer sentiment slumps in December
By Jason Lange
WASHINGTON, Dec 21 The U.S. economy showed
surprising signs of resilience in November despite the approach
of the so-called fiscal cliff as consumer spending rose by the
most in three years and a gauge of business investment jumped.
Consumer spending rose 0.6 percent when adjusted for
inflation, while new factory orders for capital goods outside
the defense and aerospace sectors - a proxy for business
spending plans - jumped 2.7 percent, the Commerce Department
said on Friday.
Economists had pinned earlier weakness in investment plans
on worries lawmakers and the White House might fail to strike a
deal to avoid the brunt of tax hikes and government spending
cuts scheduled to begin in January.
They also worried consumers would hold back as the
end-of-the-year deadline approached with both parties far apart
on how to avoid the potential hit to the economy. But Friday's
data suggested both consumers and businesses had mostly shrugged
off the cliff, at least in November.
"It appears that the looming fiscal cliff hasn't been nearly
as disruptive as we had feared," said Paul Ashworth, an
economist at Capital Economics in Toronto.
Still, another report provided ample reason for caution as
U.S. consumer sentiment slumped in December, with households
apparently rattled by on-going negotiations to lessen the fiscal
tightening that could easily trigger a recession next year.
The Thomson Reuters/University of Michigan's final index of
consumer sentiment in December tumbled more than expected to
72.9 from 82.7 a month before.
U.S stocks fell sharply after a Republican proposal for
averting the fiscal cliff was abandoned late on Thursday,
eroding optimism that a deal could be reached quickly. At the
same time, U.S. government debt prices rallied and the dollar
gained ground as investors sought a safe haven.
Economists still expect economic growth to cool in the
fourth quarter as companies slow the pace at which they have
been re-stocking their shelves, but the data on Friday suggested
consumers are offsetting some of that drag.
Consumer spending is on track to grow at a 2.2 percent
annual rate in the fourth quarter, faster than during the prior
three months, said Michael Feroli, an economist at JPMorgan in
Forecasting firm Macroeconomic Advisers raised its forecast
for fourth-quarter economic growth by four tenths of a point to
a 1.4 percent annual rate. In the third quarter, the economy
expanded at a 3.1 percent rate.
"The economy is holding in here at the end of the year
despite the concerns about the fiscal cliff," said Gary Thayer,
an economic strategist at Wells Fargo Advisors in St. Louis.
Those concerns are not going away.
In November, many analysts on Wall Street said they expected
Washington would largely avert the fiscal cliff, and optimism
had grown over the last week that a deal was within reach. Since
Wednesday, however, negotiations have fallen into disarray.
If Congress and the White House do not reach a deal in time,
taxes will go up for all Americans beginning in January and the
government will cut spending on a host of programs. Running off
the fiscal cliff would slash the nation's trillion-dollar budget
deficit nearly in half in just one year.
The impact would only come gradually, but economists expect
it would be enough to knock the country into recession in the
first half of the year.
So far, uncertainty over the talks appears to have had only
a limited impact on the economy.
New orders for durable goods, items meant to last three
years or more, rose a greater-than-expected 0.7 percent in
November due to gains in machinery, fabricated metal products,
and computer and electronic products. Those increases were
offset by a decline in volatile aircraft orders.
The report also showed a rise in shipments, brightening the
prospects for fourth-quarter economic growth.
Shipments of non-defense capital goods orders excluding
aircraft, used to calculate equipment and software spending in
the government's measures of gross domestic product, gained 1.8
percent, after rising by a softer 0.6 percent in October.