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

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.

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
  • Bloomberg

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    Dean Popplewell

    Dean Popplewell

    Vice-President of Market Analysis at MarketPulse
    Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
    Dean Popplewell