US consumer spending accelerated in December as households bought motor vehicles and cold weather boosted demand for utilities amid a rise in wages.
The data point to sustained domestic demand that could spur economic growth in early 2017.
There are also signs that inflation firmed last month.
The growth outlook was further bolstered by other data showing a jump in contracts to buy previously owned homes. A strengthening economy, rising price pressures and tightening labor market could allow the Federal Reserve to raise interest rates at least three times this year.
"Consumers keep on spending to help the economy grow andinflation is stirring," said Chris Rupkey, chief economist at MUFG Union Bank in New York. "The economy is at full employment. Time for the Fed to hoist sail on interest rates."
The Commerce Department said consumer spending, which accounts for more than two-thirds of US economic activity, increased 0.5% after gaining 0.2% in November. The rise was the biggest in three months and in line with economists' expectations.
Consumer spending increased 3.8% in 2016 after a 3.5% rise in 2015. With domestic demand firming, inflation showed some signs of picking up last month. The personal consumption expenditures (PCE) price index rose 0.2% after edging up 0.1% in November.
In the 12 months through December the PCE price index advanced 1.6%, the biggest increase since September 2014.
Excluding food and energy, the so-called core PCE price index ticked up 0.1% after being unchanged in November. The core PCE price index increased 1.7% on a year-on-year basis after a similar gain in November.