US consumers cut spending for a sixth straight month in December and their incomes shrank, according to a government report today that underscored the rapid deterioration in the economy.
The Commerce Department said spending decreased by 1 per cent after falling by a revised 0.8 per cent in November. That figure was previously reported as a 0.6 per cent drop. Incomes fell by 0.2 per cent after November's 0.4 per cent decline, previously reported as a 0.2 per cent decline.
"There is nothing encouraging in this report at all," Ian Shepherdson, chief US economist at High Frequency Economics in Valhalla, New York, said in a note to clients.
"With incomes falling...and confidence shattered, we have to expect spending to keep falling for some months yet," he said. Analysts polled by Reuters had forecast spending falling by 0.9 per cent and incomes slipping 0.4 per cent.
For the whole of 2008, spending rose 3.6 per cent, the smallest increase since 1961. Incomes increased 3.7 per cent, the smallest advance since 2003.
The data was included in last week's gross domestic product numbers and had little impact on the markets, although Treasury debt prices gained modestly.
Data last week showed the economy shrank at its fastest pace in nearly 27 years in the fourth quarter, led down by steep contractions in consumer and business spending.
The economy's collapse is keeping inflation pressures muted. The overall personal consumption expenditures price index rose 0.6 per cent on a year-over-year basis in December from 1.4 per cent in November.
Excluding food and energy, the rise in the index slowed to 1.7 per cent after gaining 1.9 per cent in November. On a monthly basis, core prices were flat for a third straight month in December.
The deepening housing-led recession has seen households saving more money. Personal savings surged in December to 3.6 per cent of disposable income from 2.8 per cent in November, the highest rate since May 2008.
"If people start saving more they will be spending less, so the downturn will be more severe and long lasting," said Scott Brown, chief economist with Raymond James and Associates in St. Petersburg, Florida.
Reuters