The Economy

Consumer Spending Drops 0.5% in December

The biggest drop in spending since 2009 confirmed expectations that the economy will slow down further in the first three months of 2019.
Matthew HellerMarch 1, 2019
Consumer Spending Drops 0.5% in December

U.S. consumer spending took a big tumble in December, possibly foreshadowing a slowdown in economic growth this quarter.

The Commerce Department reported Friday that spending fell 0.5% at the end of 2018 amid a sluggish holiday season. It was the biggest decline in nine years and followed gains of 0.7% in October and 0.6% in November.

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Personal income dipped 0.1% in January, the first decline since November 2015, after jumping 1.0% in December. Consumer spending figures for January have been delayed by the government shutdown.

The December report confirmed economists’ expectations that the economy will slow down further in the first three months of the year. The Commerce Department reported Thursday that gross domestic product grew at a 2.6% in the fourth quarter after a 3.4% gain in the July-September period.

Consumer spending, a major component of GDP, increased at a 2.8% rate in the fourth quarter.

“Unless there is a big upward revision to the disastrous December retail sales figure, the weak end-of-quarter consumption profile provides for very challenging arithmetic for first-quarter consumption growth,” Michael Feroli, an economist at JPMorgan in New York, said.

As Reuters reports, the economy has been “losing speed as the stimulus from a $1.5 trillion tax cut package and increased government spending fades. A trade war between the United States and China, higher interest rates, softening global growth, and uncertainty over Britain’s exit from the European Union are clouding the outlook.”

“A modest slowdown remains the most likely path for 2019,” said Eric Winograd, senior U.S. economist at AllianceBernstein.

Michael Pearce, senior U.S. economist at Capital Economics, blamed much of the December weakness in spending on soft sales of recreational vehicles and autos. “We already know that the weakness in auto sales extended into January,” he told The Associated Press.

Spending on goods dropped 1.9% in December after a 1.0% gain in November while outlays on services edged up 0.1%, held back by a decline in spending on household electricity and gas. When adjusted for inflation, consumer spending fell 0.6%, also the largest drop since September 2009.

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