The Economy

Consumer Spending Unchanged in December

The Federal Reserve’s “favored inflation measure” missed the central bank’s 2% annual inflation target for the 44th month in a row.
Katie Kuehner-HebertFebruary 1, 2016

U.S. consumers, worried over the potential of a global slowdown, were cautious spenders in December and inflation remained well below the U.S. Federal Reserve’s target.

Personal spending was unchanged in December from a month earlier, the U.S. Commerce Department reported on Monday. Consumption climbed an upwardly revised 0.5% in November and was flat in October.

Personal income rose 0.3% in December and, for all of 2015, increased to an annual level of 4.5% compared with a 4.4% increase in 2014.

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Economists surveyed by the Wall Street Journal had forecast a 0.1% rise in spending in December and a 0.3% rise in incomes.

“Consumer spending accounts for more than two-thirds of U.S. economic output,” the WSJ said. “Spending has risen or remained flat every month going back to January 2015, but economists worry that much of that spending is going to essentials like housing, medical care and education.”

Consumers reduced their spending on durable goods by 0.9% in December, while spending on services rose by 0.4%.

The price index for personal consumption expenditures fell 0.1% from November and is up just 0.6% from December a year ago. The U.S. Federal Reserve’s “favored inflation measure” missed the central bank’s 2% annual inflation target for the 44th month in a row.

Core prices, which strip out food and energy costs, were flat from November and up 1.4% from a year earlier.

“The progress [toward the Fed’s target] is incredibly slow, but the core rate does at least appear to be moving in the right direction,” Michelle Girard, an economist at RBS Securities, said in an analyst note.

The personal saving rate in December rose to 5.5%, from 5.3% in November. It also hit 5.5% in October, and has ticked up gradually over the past two years.

Joshua Shapiro, an economist at MFR Inc., told the WSJ that the higher saving rate could indicate consumers are “increasingly convinced that the political and economic systems of the nation are broken.”

“With that backdrop, lower energy costs and solid job growth … can only go so far in convincing consumers to spend rather than to build precautionary savings,” he said.