U.S. Consumer Spending Rose in December by Most in Three Months

U.S. consumer purchases climbed in December by the most in three months as incomes picked up, signaling a strong hand-off into 2017.

The 0.5 percent advance in consumption, which accounts for about 70 percent of the economy, followed a 0.2 percent advance in the prior month, a Commerce Department report showed Monday. The December increase matched the Bloomberg median forecast. Incomes rose 0.3 percent, less than projected.

Americans stepped up purchases during the holiday season and sales of automobiles stayed strong, capping a record year for the car industry. Solid hiring, rising wages, and low borrowing costs have increased the wherewithal to spend, while rising sentiment and expectations of lower taxes under President Donald Trump are potential tailwinds.

“The consumer has almost everything going for it,” Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, said before the report. “As the consumer goes, so goes our economy. We’re setting up for another decent year in 2017.”

Adjusting the figures for inflation, consumer spending increased 0.3 percent in December, also the most in three months. The latest advance was led by a jump in outlays for durable goods, including motor vehicles. In 2016, real household outlays climbed 2.7 percent, the least in three years.

Consumers flocked to auto dealerships last month to top off a record year for the industry. Sales of cars and light trucks jumped to a 18.3 million annualized rate in December, pushing the year’s total purchases to a record 17.55 million, according to Ward’s Automotive Group figures.

Forecasts for consumer spending ranged from increases of 0.2 percent to 0.6 percent, according to the Bloomberg survey. The previous month’s reading was initially reported as a 0.2 percent gain.

The Bloomberg survey median for incomes was 0.4 percent. November was little changed. For all of last year, incomes rose 3.5 percent, the smallest advance since 2013.

The report, on the heels of fourth-quarter data released Jan. 27, provides more perspective on the state of consumer spending at the end of the quarter.

Fourth Quarter

Gross domestic product climbed at a 1.9 percent annualized rate last quarter after a 3.5 percent pace. Household purchases grew 2.5 percent during that period, after 3 percent.

Disposable income, or the money left over after taxes, increased 0.1 percent after adjusting for inflation after no change in the prior month.

The saving rate declined to 5.4 percent, the lowest since March 2015, from 5.6 percent. Wages and salaries rose 0.4 percent last month after a 0.1 percent decrease.

Among other details, household outlays on services rose 0.3 percent in December after adjusting for inflation. The category includes tourism, legal help, health care, and personal care items such as haircuts, and is typically difficult for the government to estimate accurately.

The report also showed inflation is gradually moving toward the Federal Reserve’s goal. The price gauge based on the personal consumption expenditures index increased 0.2 percent from the prior month and was up 1.6 percent from a year earlier.

The core price measure, which excludes food and fuel, rose 0.1 percent from the prior month and was 1.7 percent higher than in December 2015. Inflation hasn’t reached the Fed’s 2 percent goal since 2012.

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