BUSINESS

US consumer spending falls 0.3 per cent in December, but personal incomes rise

02/02/2015 08:32 EST | Updated 04/04/2015 05:59 EDT
WASHINGTON - U.S. consumer spending slipped in December, as the pace of motor vehicle sales slowed and more Americans saved their money.

The Commerce Department said Monday that consumer spending fell 0.3 per cent in December, compared to a 0.5 per cent increase in November. Cheaper gasoline and fewer auto sales accounted for most of the decline.

Energy prices tumbled 5.2 per cent in December for the sixth straight monthly decline. The falling oil and gas costs caused consumer spending — before adjusting for price changes — to record the largest monthly decrease since September 2009.

Personal income rose 0.3 per cent in December, aided by the steady wave of hiring over the past year. But rather than spend those gains, consumers saved 4.9 per cent of their disposable income, up from 4.3 per cent in November.

Despite the decrease, several indicators show that Americans are growing more comfortable about the economy and are spending money again.

"Further big real income gains and soaring confidence point to serious strength in spending," said Ian Shepherdson, chief economist at Pantheon Macroeconomics. "(W)e would not be surprised to see gains approaching 5 per cent annualized in the spring."

Consumer spending rose at an annual clip of 4.3 per cent during the final three months of 2014, the strongest pace since early 2006, the government reported Friday. That surge helped drive overall economic growth of 2.6 per cent, as roughly 70 per cent of gross domestic product stems from consumer activity.

Adjusting for inflation, consumer spending during all of 2014 increased 2.5 per cent, the strongest gain since 2006, roughly a year before the Great Recession started.

The University of Michigan reported that its consumer sentiment index stood at 98.1 per cent in January, the highest reading since 2004. Half of the consumers surveyed expect the current expansion to continue for the next five years.

Similarly, incomes are rising at a slightly better pace. The Labor Department's employment cost index, which measures pay and benefits, climbed 2.2 per cent in 2014, up from 2 per cent the previous year. Despite the improvement, the index remains below its historical increase of 3.5 per cent.

Much of the ongoing momentum will depend on whether the economy continues to spawn jobs, and most believe that that will be the case.

Economists expect the U.S. to report Friday that employers added 230,000 jobs. If the forecast proves accurate, the economy will have gained at least 200,000 jobs in each of the past 12 months, the best streak since the 16 months of gains in excess of 200,000 between 1993 and 1994.