Consumer Spending Fell Sharp 0.5% in December
WASHINGTON — U.S. consumer spending tumbled 0.5% in December, the biggest decline in nine years, as the holiday shopping season ended in disappointment. Meanwhile, incomes rose sharply in December but edged down in January.
The fall in consumer spending followed sizable gains of 0.7% in October and 0.6% in November, the Commerce Department reported March 1. December’s result means that spending for the quarter decelerated significantly, a primary factor in the slowing of the overall economy in the final three months of the year. Gross domestic product recorded a growth rate of 2.6% after a 3.4% gain in the third quarter.
Incomes jumped 1% in December, though slipped 0.1% in January. The government did not release spending data for January because of delays stemming from the government shutdown.
The big fall in spending reflected sizable declines in purchases of durable goods such as autos, as well as nondurable goods such as clothing during the all-important holiday shopping season. The result shows that consumer spending, which accounts for 70% of economic growth, was showing significant weakness heading into the current quarter.
Many economists believe that GDP growth will slow further during the current January-March period, with some expecting GDP to drop to a growth rate of 2% or lower.
Inflation, as measured by a gauge preferred by the Federal Reserve, was up 1.7% for the past 12 months ending in December. That’s the slowest 12-month pace since a similar 12-month gain for the period ending in October 2017 and is below the Fed’s 2% target for annual price increases.
Federal Reserve Chairman Jerome Powell told Congress this week that with a number of economic risks facing the country and with inflation so low, the central bank intends to be patient in deciding when to change interest rates again.
The move to a prolonged pause in further rate hikes, which the Fed had announced at its January meeting, has cheered financial markets. They had been worried that the central bank, which hiked its benchmark rate four times last year, could move rates up too quickly, raising the risks of an economic downturn.
The spending and income report showed that the saving rate jumped to 7.6% of after-tax income in December, compared with 6.1 % in November. That was the highest saving rate since January 2016.
