Shoppers take break in December

February 2, 2015 08:56 AM

Fed Policy

The oil-price plunge is also weighing on inflation, making it more difficult for the Federal Reserve to determine the timing of its first interest rate increase since 2006. The price index tied to consumer spending declined 0.2% in December, the Commerce Department report showed.

From a year earlier, the gauge was up 0.7%, the smallest increase since October 2009. This inflation measure is preferred by Fed policy makers and hasn’t been above their 2% goal since March 2012.

Stripping out the volatile food and energy components, the price measure was little changed from the month before, and climbed 1.3% in the 12 months ended December.

Central bank policy makers upgraded their assessment of the U.S. economy, saying “activity has been expanding at a solid pace,” in a Jan. 28 statement that also maintained a pledge to be “patient” on raising interest rates. “Labor market conditions have improved further, with strong job gains and a lower unemployment rate.”

Labor Market

Progress in the labor market has helped boost incomes, albeit slowly. Almost 3 million more people found work in 2015, the most since 1999.

Tyson Foods Inc. is among companies contributing to the improvement. The largest U.S. meat producer plans to create more than 500 jobs at its Vienna, Georgia, poultry plant amid growing demand for its products.

“In the past quarter, consumer confidence, lower gas prices and unemployment data were tailwinds that we expect will continue to favor food spending in the New Year,” Chief Executive Officer Donald Smith said on a Jan. 30 earnings call. “But pressures like long-term unemployment and limited wage growth still weigh on a lot of people.”

Disposable income, or the money left over after taxes, increased 0.5% in December from the prior month after adjusting for inflation.

Page 2 of 2
About the Author