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U.S. Consumer Spending Rose in December, Saving Rate Dipped

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U.S. December Inflation-Adjusted Consumer Spending Rises

U.S. consumer spending rose at a solid pace in December after an upwardly revised advance a month earlier as shoppers splurged during the holiday season. While incomes also rose, the saving rate fell to a fresh 12-year low.

Purchases, which account for about 70 percent of the economy, climbed 0.4 percent after a revised 0.8 percent advance, Commerce Department figures showed Monday. The December gain matched the median forecast in a Bloomberg survey. Incomes also rose 0.4 percent as worker pay climbed the most in three months.

The data are in sync with a report last week that showed faster fourth-quarter consumption, which put the biggest part of the economy on a firm footing entering 2018. In addition to low borrowing costs and steady hiring, Americans will benefit from lower tax rates. A pickup in wages would provide further impetus for spending.

The Federal Reserve’s preferred inflation gauge -- tied to consumption -- rose 0.1 percent in December from the previous month and 1.7 percent from a year earlier. Inflation has mostly missed the central bank’s 2 percent target since 2012. Excluding food and energy, so-called core prices climbed 0.2 percent, matching the survey median. The core was up 1.5 percent from December 2016.

While inflation remains below the Fed’s goal, officials are expected to keep raising rates gradually in 2018. Investors project that policy makers will raise rates three times this year, possibly starting as soon as March. Central bank officials are meeting Tuesday and Wednesday.

What Our Economists Say

December’s personal spending data were already incorporated into the 4Q GDP report that featured considerable acceleration in consumer activity in the period relative to 3Q. However, the intra-quarter trajectory of spending growth reflects a boost from an exceptionally strong holiday season, as both the November and December readings were stronger than the pace in the beginning of the quarter. While enthusiasm toward potential tax cuts could be helping to stoke consumption, the more dominant driver appears to be an emerging pickup in household income creation, particularly, the upward trend in the wages and salaries component.

-- Yelena Shulyatyeva and Carl Riccadonna, Bloomberg Economics

Read more here and hear more here from Bloomberg Economics.

Wages and salaries increased 0.5 percent in December after a 0.4 percent gain, the data showed. Disposable income, or earnings adjusted for taxes and inflation, rose 0.2 percent after little change a month earlier.

Fourth-quarter household consumption expanded at a 3.8 percent annualized rate, matching the fastest pace since the end of 2014, Commerce Department figures on gross domestic product showed Friday. GDP increased at a 2.6 percent pace, slower than forecast, as trade and inventories subtracted from growth.

Other Details

  • Saving rate fell to 2.4 percent in December, the lowest since September 2005, from 2.5 percent
  • Durable goods spending, adjusted for inflation, rose 0.8 percent after a 1.1 percent increase in the prior month; nondurable goods little changed after a 1 percent gain
  • Household outlays on services, adjusted for inflation, increased 0.3 percent for a second month

— With assistance by Jordan Yadoo

(Updates with graphic.)
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