Consumer Spending Tapers in December as Americans Pad Savings
Household spending cooled in December as Americans used gains in incomes to boost their savings.
Consumer purchases were little changed after a 0.5% advance in November that was bigger than previously estimated, Commerce Department figures showed Feb. 1. The Bloomberg News survey median forecast called for a 0.1% increase. Incomes climbed 0.3% for a second month.
Household purchases moderated in the fourth quarter, contributing to a slowdown in the economy as businesses slashed investment and worked to pare down inventories. A spending rebound, powered by sustained job gains and low inflation, will be needed to reinvigorate growth in the coming quarters.
“Consumers in the U.S. have gotten a little savings religion given what happened in the previous decade with the financial crisis, but I don’t think they’ve completely changed their habits,” said Bob Stein, deputy chief economist at First Trust Portfolios in Wheaton, Illinois, who correctly forecast December spending. “Eventually, consumers are going to loosen up on their pocketbooks and their wallets.”
Projections of economists in the Bloomberg survey for spending ranged from a 0.2% decline to a gain of 0.5%. The previous month’s reading initially was reported as a 0.3% increase. Incomes were projected to rise 0.2%.
Disposable income, or money left over after taxes, increased 0.4% in December from the prior month after adjusting for inflation. It grew 3.5% in 2015, the most in nine years.
The saving rate in December climbed to 5.5% from 5.3% and matched the highest since the end of 2012.
The report showed the price index tied to consumer spending decreased 0.1% in December. From a year earlier, the gauge was up 0.6%. This inflation measure is preferred by Federal Reserve policymakers and hasn’t met their target since April 2012.
Stripping out the volatile food and energy components, the price measure was unchanged from the month before and up 1.4% in the 12 months ended December.
Fed policymakers are keeping a close eye on inflation, the part of their dual mandate that is furthest from being accomplished. Inflation “is expected to remain low in the near term, in part because of the further declines in energy prices,” officials said in a statement at the conclusion of a two-day meeting in Washington last week.
After adjusting for inflation, which generates the figures used to calculate gross domestic product, purchases climbed 0.1% last month after a 0.4% gain in November.
A report last week showed the economy expanded at a slower pace in the fourth quarter as households tempered spending and businesses cut back on capital investment and adjusted inventories. GDP climbed at a 0.7% annualized rate after a 2% pace in the third quarter.
Household purchases rose at a 2.2% annualized pace in the fourth quarter, compared with a 3% rate in the previous period. Even with the slowdown, consumer spending advanced 3.1% for the year, the most since 2005.
The Feb. 1 report showed spending in December was led by services, which climbed an inflation-adjusted 0.3%.
Spending on durable goods, including automobiles, decreased 0.7% adjusting for inflation, the most since June, after a 1.8% surge in November. Purchases on nondurable goods, which include gasoline, dropped 0.2%.
Americans’ appetites for automobiles have waned somewhat, which contributed to the moderation in fourth-quarter spending. Industry data from Ward’s Automotive Group showed cars and light trucks sold at a 17.2 million annualized rate in December, the slowest pace since June. Even so, it capped a record year of sales for the industry.
