Consumer Spending Cooled in December as Americans Padded Savings

  • Purchases little changed as spending on merchandise dropped
  • Disposable income in 2015 increased by most in nine years

Household spending cooled in December as Americans used gains in incomes to boost their savings.

Consumer purchases were little changed after a 0.5 percent advance in November that was bigger than previously estimated, Commerce Department figures showed Monday. The Bloomberg survey median forecast called for a 0.1 percent increase. Incomes climbed 0.3 percent 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 LP 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 percent decline to a gain of 0.5 percent. The previous month’s reading was initially reported as a 0.3 percent increase. Incomes were projected to rise 0.2 percent.

Disposable income, or money left over after taxes, increased 0.4 percent in December from the prior month after adjusting for inflation. It grew 3.5 percent in 2015, the most in nine years.

The saving rate in December climbed to 5.5 percent from 5.3 percent and matched the highest since the end of 2012.

The report showed the price index tied to consumer spending decreased 0.1 percent in December. From a year earlier, the gauge was up 0.6 percent. This inflation measure is preferred by Federal Reserve policy makers 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 percent in the 12 months ended December.

Fed policy makers are keeping a close eye on inflation, the part of their dual mandate that’s 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 percent last month after a 0.4 percent gain in November.

Fourth Quarter

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 percent annualized rate after a 2 percent pace in the third quarter.

Household purchases rose at a 2.2 percent annualized pace in the fourth quarter, compared with a 3 percent rate in the previous period. Even with the slowdown, consumer spending advanced 3.1 percent for the year, the most since 2005.

Monday’s report showed spending in December was led by services, which climbed an inflation-adjusted 0.3 percent.

Spending on durable goods, including automobiles, decreased 0.7 percent adjusting for inflation, the most since June, following a 1.8 percent surge in November. Purchases on non-durable goods, which include gasoline, dropped 0.2 percent.

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.

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