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HomeNewsEconomyConsumer Spending Rises Even As Incomes Stay Flat And Savings Crater

Consumer Spending Rises Even As Incomes Stay Flat And Savings Crater

(Photo: REUTERS)

U.S. consumer spending rose more than expected in December, but weak income growth suggested the economy could miss first quarter expectations.

The Commerce Department said on Friday that consumer spending increased 0.4 percent after rising by a revised 0.6 percent in November. Consumer spending was previously reported to have increased 0.5 percent in November.

Economists polled by Reuters had forecast consumer spending, which represents more than two-thirds of U.S. economic activity, rising 0.2 percent in the month of December.

When adjusted for inflation, consumer spending rose 0.2 percent after advancing 0.6 percent in November.

The figures were included in the advance fourth-quarter gross domestic product report published on Thursday and confirmed the momentum in consumer spending at the end of 2013.

Even though consumer spending recorded its strongest gain in 3 years in the fourth quarter, helping to lift the economy to a 3.2 percent annual growth rate during that period, Americans’ income was unchanged last month after rising 0.2 percent in November. Already liberal economists are arguing the flat income is due to the end of jobless benefits for about 1.3 million long-term unemployed last month.

But we have no historical trend to back that up, nor would that account for the flat and dropping personal income levels over the last 5 years.

Income at the disposal of households after adjusting for inflation fell 0.2 percent, will be likely be reflected in consumer spending for the first quarter.

Weak income growth against the fairly strong spending backdrop translates into less savings for the American people. The saving rate, which is the percentage of disposable income households are putting away, dropped to an 11-month low of 3.9 percent in December.

It was at 4.3 percent in November.

Inflation ticked up a bit in the month December. A price index for consumer spending rose 0.2 percent after being unchanged for 2 consecutive months.

Over the past 12 months, prices rose 1.1 percent, compared to an advance of 0.9 percent in November. Even a modest increase can hurt Americans under felt or decreasing incomes.

Excluding food and energy, the price index for consumer spending rose 0.1 percent, rising by the same margin for a 6 straight month. Core prices were up 1.2 percent from 1 year ago, after rising 1.1 percent in the month of November.

Regardless of which inflation measurements are examined, they remain stuck below the Federal Reserve’s 2 percent target. That suggests that the Fed, which is gradually reducing the amount of money it is pumping into the economy through printing money in their quantitative easing bond-buying program, will hold interest rates near zero for the foreseeable future.

Meanwhile, a reading on consumer sentiment from Thomson Reuters and the University of Michigan rose slightly in late January to 81.2 from a preliminary reading of 80.4 earlier in the month. Wall Street anticipated a reading of 81.

Written by

PPD Business, the economy-reporting arm of People's Pundit Daily, is "making sense of current events." We are a no-holds barred, news reporting pundit of, by, and for the people.

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