Shoppers take break in December

February 2, 2015 08:56 AM

 Consumer spending fell in December as households took a breather from the break-neck pace of buying that characterized the fourth quarter.

Household purchases declined 0.3%, the biggest decline since September 2009, after a 0.5% November gain, Commerce Department figures showed Monday in Washington. The median forecast of 68 economists in a Bloomberg survey called for a 0.2% drop. Incomes and the saving rate rose.

Consumers responded to early promotions by doing most of their holiday shopping in October and November, leading to the biggest jump in consumer spending last quarter in almost nine years. For 2015, a pick-up in wage growth will be needed to ensure households remain a mainstay of the expansion as the economy tries to ward off succumbing to a global slowdown.

“Consumption ended on a softer note, but it’s important to think about the quarter in whole, and we know October and November were good months,” Tom Porcelli, chief U.S. economist at RBC Capital Markets LLC in New York, said before the report. “With the improvement we’ve seen in energy prices and the improvement we’ve seen in confidence, that all suggests it’s reasonable to hold a constructive view on spending over the course of 2015.”

Projections for spending ranged from a decline of 0.6% to a 0.2% gain. The previously month’s reading was initially reported as an increase of 0.6%.

Incomes climbed 0.3% in December for a second month, the Commerce Department’s report showed. The Bloomberg survey median called for a 0.2% increase. November’s income reading was revised down from a 0.4% gain previously reported.

Fourth Quarter

While growth in the world’s largest economy slowed in the fourth quarter, consumption surged, with household spending rising at the fastest pace since early 2006, a report from the Commerce Department last week showed.

Gross domestic product climbed at a 2.6% annual rate from October through December after a 5% pace in the third quarter, the report showed. Cheaper gasoline and labor market improvement helped consumption grow at a 4.3% rate, the biggest since 2006, though business investment cooled amid plunging oil prices and concerns that growth in overseas markets is faltering.

After adjusting for inflation, which generates the figures used to calculate GDP, purchases dropped 0.1% in December after jumping 0.7% the previous month, according to the report.

Spending Breakdown

Spending on durable goods, including automobiles, decreased 0.7% after adjusting for inflation, following a 2.5% gain. Purchases of non-durable goods, which include gasoline, fell 0.1%.

Automobile demand was a pillar of strength for the economy in 2014, with light-vehicle sales totaling 16.5 million, the most since 2006. And after last year’s strong finish, analysts surveyed by Bloomberg raised their 2015 estimates, forecasting 16.9 million deliveries.

Those sales have been fueled in part by a drop in oil prices and the cheapest gasoline in years. The average price of a gallon of regular gasoline was $2.06 on Feb. 1, compared to the 2014 peak of $3.70 reached in April.

Expenditures on services were little changed after adjusting for inflation, Monday’s figures showed. The category, which includes tourism, legal help, health care, and personal care items such as haircuts, is typically difficult for the government to estimate accurately until more information is available in later months.

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