US consumer spending rose solidly in December as households bought cars and a range of services amid rising wages, pointing to sustained domestic demand that could spur faster economic growth in early 2017.
There are also signs of US inflation steadily firming.
The strengthening economy, rising price pressures and a tightening labour market could allow the Federal Reserve to lift interest rates at least three times this year.
The Commerce Department said today that consumer spending, which accounts for more than two-thirds of US economic activity, increased 0.5% after an unrevised 0.2% gain in November.
The increase was in line with economists' expectations.
Consumer spending increased 3.8% in 2016 after a 3.5% rise in 2015.
When adjusted for inflation, US consumer spending increased 0.3% last month after rising 0.2% in November.
The report was released ahead of the Fed's two-day policy meeting that begins tomorrow.
The Fed, which has forecast three rate hikes this year, is not expected to raise rates at this week's meeting.
The Fed lifted its benchmark overnight interest rate in December by 25 basis points to a range of 0.5% to 0.75%.
The consumer spending, income and inflation data for December was included in the fourth-quarter gross domestic product report published last Friday. The US economy grew at a 1.9% annual rate in the fourth quarter, restrained by a wider trade deficit.
Private domestic demand, however, increased at a solid 2.8% rate. The economy grew at a 3.5% rate in the third quarter.
US consumer spending last month was buoyed by a 1.4% jump in purchases of long-lasting manufactured goods such as cars. Spending on services increased 0.4%.
Personal income advanced 0.3% last month after nudging up 0.1% in November.
Wages and salaries rebounded 0.4%after slipping 0.1% in November, today's figures show. And incomes increased 3.5% in 2016 after rising 4.4% in 2015.
However, savings fell to $768.4 billion last month, the lowest level since May 2015, from $791.2 billion in November.
