In December, U.S. consumer spending gained some solid increases as demand for goods and services rose, but savings fell to a 10-year low which can indicate problems for future consumption and economic growth.
On Monday, the Commerce Department stated that consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.4 percent last month following an upwardly revised 0.8 percent increase for November. Many people went into their savings to maintain spending amid slow income growth. The levels that savings are now at have not been seen December 2007, when the economy went into recession, and signal problems for both consumer spending and economic growth.
Savings dropped to $351.6 billion in December from $365.1 billion in the prior month. The saving rate dropped to 2.4 percent, the lowest level since September 2005, from 2.5 percent in November. Personal income increased 0.4 percent in December after gaining 0.3 percent in November. Last month, wages increased 0.5 percent while income rose 3.1 percent in last year.
Economists had forecast that consumer spending would increase 0.4 percent in December after a previously reported 0.6 percent increase the month prior. When adjusted for inflation, consumer spending increased 0.3 percent in December.
The U.S. dollar traded higher against a basket of currencies while the prices of U.S. Treasuries and U.S. stock index futures were lower.
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This data was included on the report published on Friday for the advance fourth-quarter gross domestic product. Consumer spending increased at a 3.8 percent annualized rate during the fourth quarter, the fastest in three years, following the third quarter’s pace of 2.2 pace.
Strong consumer spending assisted balance the weight from trade and inventories on the economy, which grew at a 2.6 percent rate during the fourth quarter and GDP increased at a 3.2 percent pace.
In December, spending on long-lasting goods, including as motor vehicles, increased 0.7 percent. Outlays on services increased 0.5 percent, which indicates an increase in demand for utilities.
Monthly inflation increased last month. The Federal Reserve’s preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, moved up 0.2 percent following November’s 0.1 percent gain. The so-called core PCE increased 1.5 percent in the 12 months through December and has missed the Fed’s 2 percent target since 2012.