Don't Freak Out About December's Drop in Consumer Spending

Consumer spending fell 0.3 percent in December, a number that was worse than the 0.2 percent decline that analysts had expected. In fact, the drop was the worst in five years. But before you assume the U.S. recovery is coming off the rails, it's important to get some context.

The 0.3 percent drop follows two months of solid gains. November spending rose 0.5 percent, and October spending was up 0.2 percent. Furthermore, as we saw on Friday when U.S. gross domestic product was reported, fourth-quarter personal consumption rose 4.3 percent, a very strong reading. And, signs look good ahead, as consumer confidence continues to surge. "Further big real income gains and soaring confidence point to serious strength in spending; we would not be surprised to see gains approaching 5% annualized in the spring," said Ian Shepherdson of Pantheon Macroeconomics.