Consumer spending in the U.S. climbed more than forecast in December even as incomes stagnated, showing the economy needs to generate bigger gains in employment to boost the expansion.
Household purchases, which account for about 70 percent of the economy, rose 0.4 percent, after a 0.6 percent gain the prior month that was larger than previously estimated, Commerce Department figures showed today in Washington. The median projection of 81 economists in a Bloomberg survey called for a 0.2 percent rise. Incomes were unchanged, pushing the saving rate to the lowest level in almost a year.
The report follows data yesterday that showed household spending rose in the fourth quarter at the fastest pace in three years, helping the economy overcome the fallout from the federal government shutdown. At the same time, absent bigger gains in pay, Americans will probably have difficulty sustaining the pickup into early 2014.
The increase in consumer spending “is a good sign for sustaining economic growth,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who correctly projected the gain in spending. “Job creation will have to accelerate to sustain the current level of spending.”
Other reports today showed business activity in the Chicago area expanded more than forecast in January and consumer sentiment declined less than previously estimated.
The Institute for Supply Management-Chicago Inc.’s barometer decreased to 59.6 this month from 60.8 in December, the group said today. The gauge’s average over the past four months was the highest since June 2011.
The median estimate in a Bloomberg survey of 56 economists called for a decline to 59. Readings greater than 50 signal growth.
The Thomson Reuters/University of Michigan final sentiment index for this month dropped to 81.2 from 82.5 in December. The median estimate in a Bloomberg survey called for a decline to 81 after a preliminary January reading of 80.4.
The loss of confidence probably results in part from the recent drop in stocks. The Standard & Poor’s 500 Index declined 0.9 percent to 1,778.04 at 10:17 a.m. in New York, heading for its worst start to a year since 2009.
Projections for spending ranged from a 0.1 percent drop to a gain of 0.5 percent. The November reading was previously reported as an increase of 0.5 percent.
For all of 2013, spending climbed 3.1 percent, the smallest advance since 2009.
Another report today showed the cost of employee compensation, including wages and benefits, climbed 0.5 percent in the fourth quarter from the previous three months, according to Labor Department data. They rose 2 percent from the same period in 2012, the biggest year-to-year gain since the second quarter of 2011.
The Bloomberg survey median called for personal incomes to rise 0.2 percent. Last month’s unchanged reading followed an unrevised 0.2 percent gain in November.
Disposable income, or the money left over after taxes, dropped 0.2 percent in December after adjusting for inflation from the prior month, the biggest decrease since January. Over the past 12 months, it fell 2.7 percent, the largest year-to-year drop since November 1974, reflecting the impact of the expiration of the payroll tax break, the increase in some income taxes earlier in the year and weak wage gains.
The saving rate decreased to 3.9 percent, the lowest level since January, from 4.3 percent. Wages and salaries were unchanged in December from the prior month.
Gross domestic product grew at a 3.2 percent annualized rate in the final three months of 2013, following a 4.1 percent pace from July through September, a Commerce Department report showed yesterday. Consumer spending climbed at a 3.3 percent pace, the best quarterly performance since the end of 2010.
Today’s figures show the monthly breakdown for the quarterly data. After adjusting consumer spending for inflation, which generates the figures used to calculate GDP, purchases rose 0.2 percent in December after a 0.6 percent increase in the previous month that was larger than the previously estimated 0.5 percent gain. The reading for October was revised down to 0.1 percent from 0.4 percent.
Inflation-adjusted spending on durable goods, including automobiles, decreased 1.4 percent after a 2.1 percent gain in November. Purchases of non-durable goods, which include gasoline, rose 1 percent, while outlays on services gained 0.2 percent.
The core price measure, which excludes food and fuel, rose 0.1 percent from the prior month and was up 1.2 percent from December 2012.
Americans are getting help in repairing their finances and rebuilding wealth: the S&P/Case-Shiller index of property prices in 20 cities climbed in November from a year earlier by the most since 2006. The S&P 500 jumped 30 percent in 2013, its best performance since 1997.
Some companies were caught by surprise at the jump in demand late in the year.
United Parcel Service Inc. said it will spend more than $100 million to improve peak-period service after a late surge in online Christmas shopping caused missed deliveries that boosted costs. With the delivery volume growth rate during the holiday period almost twice what UPS had projected, it had to add 30,000 more workers than planned, Chief Executive Officer Scott Davis said yesterday on a conference call. Some packages still didn’t arrive at their destinations by Christmas.
Coach Inc., the largest U.S. luxury handbag maker, was among companies that didn’t fare so well. Sales at North American stores dropped twice as much as analysts estimated during the holiday shopping season.
Automobile purchases are a bright spot for demand as consumers replace older models. While snowstorms restrained purchases in December, automakers in 2013 completed their best sales year since 2007.
In December, payrolls climbed by 74,000 after a 241,000 jump a month earlier. The jobless rate fell to 6.7 percent, the lowest since October 2008, according to the Labor Department.
Faster gains in employment may help to spur consumer spending this year. Economists surveyed by Bloomberg projected payrolls will rise by about 200,000 workers a month in 2014, compared with 182,000 last year and 183,000 in 2012.
Federal Reserve policy makers this week said the central bank will cut monthly bond purchases by $10 billion to $65 billion, citing economic growth that has “picked up in recent quarters.”