Consumer Spending Tapered Off Ahead of the Holidays

The personal-consumption expenditures price index—the Federal Reserve’s preferred gauge of inflation—rose 5.5% in November from a year earlier, a significant cooling from 6.1% in October. The core PCE-price index, which removes volatile food and energy prices, rose 4.7% in November from a year earlier, compared with 5.0% in October.

On a month-to-month basis, the PCE-price index rose 0.1% in November from the prior month, compared with October’s 0.4% increase. Core prices rose 0.2% in November from the prior month, easing from October’s 0.3% increase.

Other figures released on Friday pointed to slowing business demand with a decline in orders for long-lasting goods. Consumer sentiment improved as concerns over inflation eased. And new home sales increased in November from the prior month, but were well below sales for the same month a year earlier.

Stocks wavered and bond yields rose on Friday after the data releases.

The latest data added to evidence that inflation has eased from highs reached over the summer and that economic growth has slowed from a red-hot pace during the pandemic rebound.

The Fed has aggressively raised its benchmark interest rate this year to cool the economy and fight inflation. Fed officials have signaled plans to continue lifting rates through the spring.

“The economy is moving in the right direction but not quickly enough,” said

Gus Faucher,

the chief economist at PNC Financial Services Group, “Inflation is slowing but services inflation is a real problem” as the Fed attempts to bring down inflation.

Mr. Faucher said rising prices for services could remain higher than the Fed wants. The price index for goods declined 0.4% in November from October while the one for services rose 0.4%.

Spending on goods including cars, furniture and hobby purchases, such as all-terrain vehicles, declined in November from October. Services, including spending on housing, medical care, recreation and restaurants, increased.

“You have weakness in goods demand, but all the services sectors still look pretty good,” said Veronica Clark, an economist at Citigroup.

Spending on hotels and restaurants rose 1.1% in November from October and is up 15% from a year ago. Daniel Ramirez of the Ramirez Hospitality Group said people have been eager to eat with friends and family at his Mexican restaurants in Colorado even in freezing cold temperatures.

“Even on a day like today, people are still going out,” he said. “They love their green chili.”

Consumer spending, the main driver of economic growth, contributed to stronger than previously estimated third-quarter growth, the Commerce Department said Thursday, after two consecutive quarters of contraction.

The labor market remains tight, with unemployment at 3.7% and demand for workers greatly exceeding the number of unemployed people looking for work, though some companies have announced layoffs in recent weeks. That has helped buoy household income despite rapidly rising prices and the Fed’s rate increases.

Personal income rose 0.4% in November from the prior month, compared with 0.7% in October, the Commerce Department said. Wages rose 0.5% last month, similar to gains earlier in the fall.

While the personal saving rate increased to 2.4% in November from 2.2% in October, it is now well below prepandemic levels and a sign households are dipping into savings to cover spending.

Separately, the Commerce Department said that new orders for long-lasting products—including planes, factory equipment, computers and washing machines—declined 2.1% in November to a seasonally adjusted $270.6 billion. A closely watched proxy for business investment increased 0.2% to $75.2 billion in November compared with the previous month.

Consumer spending has shown signs of cooling during the holiday season. November retail sales fell 0.6% from the prior month for the biggest monthly decline this year, the Commerce Department said earlier this month.

Shoppers pulled back sharply on holiday-related purchases, home projects and cars. U.S. business activity declined further in December, as demand for goods decreased and factories cut production, according to surveys released last week by S&P Global. But inflationary pressures also eased.

Kayla Bruun, an economic analyst at decision-intelligence company Morning Consult, said lower-wage workers were getting hit harder by inflation and starting to pull back spending.

“Inflation concerns are a big downward pressure on spending,” she said. “Consumers are working their way through their savings buffers they have built up.”

She also said the Fed is watching wage growth as it considers next steps in its inflation fight. The Fed approved an interest-rate increase of 0.5 percentage point this month and signaled plans to lift rates through the spring, though likely in smaller increments.

“There is a concern that the pace of wage growth will put a floor on how much those prices will fall,” Ms. Bruun said.

Donna Goodrich, president of appliance and furniture store Top Furniture in Gorham, N.H., said holiday sales have been mixed, with good sales in November followed by a weaker December. Ms. Goodrich has twice this year boosted pay for her delivery workers to try to keep them from leaving.

“The biggest challenges for 2022 have been labor and price increases,” she said.

Mark Yonally, co-owner of Albany, N.Y., clothing store B. Lodge & Co., said customers have been shopping for gifts in recent weeks and he is hopeful that the buying will continue through Christmas Eve, which is Saturday.

“We are having a good holiday season,” he said. “Some seasons are spread out, some come all at the last minute.”

Write to Austen Hufford at austen.hufford@wsj.com