Consumer Spending in U.S. Stalls

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Photographer: Peter Foley/Bloomberg

A customer exits a Hennes & Mauritz AB (H&M) store in New York on Dec. 28, 2011.

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Photographer: Peter Foley/Bloomberg

A customer exits a Hennes & Mauritz AB (H&M) store in New York on Dec. 28, 2011. Close

A customer exits a Hennes & Mauritz AB (H&M) store in New York on Dec. 28, 2011.

Photographer: Spencer Platt/Getty Images

Shoppers along Broadway in New York City. Close

Shoppers along Broadway in New York City.

Photographer: Matthew Staver/Bloomberg

Shoppers look at kitchen appliances during the grand opening of an Ikea Group store in Centennial, Colorado. Close

Shoppers look at kitchen appliances during the grand opening of an Ikea Group store in Centennial, Colorado.

Photographer: Peter Foley/Bloomberg

Merchants including Macy’s Inc. cut prices to attract more business during the holiday shopping season. Close

Merchants including Macy’s Inc. cut prices to attract more business during the holiday shopping season.

Consumer spending stalled in December as Americans took advantage of a jump in incomes to restore depleted savings, indicating households remain focused on repairing finances.

Purchases were little changed after rising 0.1 percent the prior month, Commerce Department figures showed today in Washington. The median estimate of 77 economists surveyed by Bloomberg News called for a 0.1 percent increase in sales. Incomes climbed by the most in almost a year, pushing the savings rate to a four-month high.

The data illustrate the importance of sustained gains in jobs and wages to ensuring the growth of household purchases, the biggest part of the economy. The weak end to the quarter makes it more likely that consumer spending will cool early this year, underscoring the Federal Reserve’s decision to leave interest rates low until 2014.

“A pause in spending is not a bad thing if it has the income behind it,” said Jonathan Basile, an economist at Credit Suisse in New York, who correctly projected spending would be unchanged. “Household saving is really the main source of future spending.”

Stocks dropped amid concern about Europe’s debt crisis as European leaders sparred with Greece over a second rescue program. The Standard & Poor’s 500 Index fell 0.3 percent to 1,313.01 at the close in New York. Treasury securities rose, sending the yield on the benchmark 10-year note down to 1.85 percent from 1.89 percent late on Jan. 27.

Euro-Area Confidence

Elsewhere today, Euro-area confidence in the economic outlook rose less than projected in January as the region’s leaders struggled to fix the financial crisis. An index of executive and consumer sentiment in the 17-nation euro area advanced to 93.4 from a revised 92.8 in December, the European Commission in Brussels said today. It marked the first gain since February 2011.

In Asia, Chinese officials held off on a reduction in bank reserve requirements that some economists had predicted would come before a week-long holiday ending Jan. 28, suggesting they are cautious on more monetary easing.

Economists’ projections for U.S. consumer spending in the Bloomberg survey ranged from decreases of 0.3 percent to increases of 0.6 percent.

Incomes (PITLCHNG) climbed 0.5 percent in December, the most since March. Economists forecast incomes would climb 0.4 percent, according to the Bloomberg survey. Wages and salaries increased 0.4 percent after little change a month earlier.

More Savings

The gain in income helped push the savings rate up to 4 percent in December from 3.5 percent the prior month, a sign consumers may be working to restore depleted accounts. It was the biggest increase in the rate since April 2010, taking it to the highest level since August.

Adjusted for inflation, which are the figures used to calculate gross domestic product, consumer spending dropped 0.1 percent, the worst performance since August.

Restrained consumer spending last quarter prevented growth from meeting economists’ forecast. The world’s largest economy expanded 2.8 percent in the final three months of 2011, compared with a 3 percent estimate. Household purchases rose 2 percent.

Economists at Morgan Stanley in New York lowered their tracking estimate for spending this quarter to 1.4 percent after today’s report from a prior forecast of 1.9 percent because of the loss of momentum heading into 2012.

Weak Recovery

For all of last year, consumer spending rose 2.2 percent after advancing 2 percent in 2010, marking the weakest two-year performance of any expansion since World War II.

Retail sales, an earlier gauge of demand, showed spending lost momentum each month in the fourth quarter. Sales slowed from a 0.7 percent gain in October to a 0.1 percent increase in December. Merchants including Macy’s Inc., Gap Inc. and Target Corp. cut prices to attract more business during the holiday shopping season.

“Unemployment has remained stubbornly high,” Sandra Cochran, chief executive officer of Cracker Barrel Old Country Store Inc. (CBRL), said during a Jan. 11 conference. “This has focused the industry on price and prompted many of our competitors to remain very focused on discounting.”

Bigger gains in hiring may give households the confidence to boost spending. The jobless rate dropped to 8.5 percent in December, the lowest level in almost three years, and employers added 200,000 new workers to payrolls, according to Labor Department data.

Less Pessimistic

The Thomson Reuters/University of Michigan index of consumer sentiment rose in December to the highest level in 11 months, and the Bloomberg Consumer Comfort index has climbed from its 2011 low in November.

More confidence will help overcome declining real-estate values. A report tomorrow from S&P/Case-Shiller is projected to show home prices in 20 U.S. cities dropped 3.3 percent in the 12 months to November, according to economists surveyed.

A measure of prices tied to consumer spending advanced 2.4 percent in December from a year earlier, the smallest 12-month gain since April. The Fed’s long-term goal is 2 percent, policy makers’ said last week.

Excluding food and energy costs, the price gauge increased 0.2 percent in December, and was up 1.8 percent over the past 12 months, the biggest gain since March 2010.

Fed officials said last week their benchmark interest rate will stay low until at least late 2014 and they forecast unemployment will “decline only gradually.” They previously had vowed to keep rates low until at least the middle of 2013.

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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