US consumer spending rose slightly less than expected last month as savings jumped to a six-month high, indicating that households remained too cautious to spend despite an improvement in incomes.
The Commerce Department said today spending rose 0.2 per cent after increasing by an upwardly revised 0.7 per cent in November. Consumer spending in November was previously reported to have climbed 0.5 per cent. It was the third straight monthly gain in spending.
Analysts polled by Reuters had expected consumer spending, which normally accounts for over two-thirds of US economic activity, to rise 0.3 per cent last month.
"The December spending numbers were revised up, so the weaker numbers for January are not so bad," said Gary Thayer, chief macrostrategist at Wells Fargo Advisors in St Louis.
US stock index futures rose slightly after the data, while government bond prices were steady at lower levels.
For the whole of 2009, spending fell 0.4 per cent, the largest drop since 1938.
Boosting consumer spending is critical to putting the economy on a sustainable recovery path, but a 10 per cent unemployment rate is pressuring households.
The economy grew at a 5.7 per cent annual pace in the fourth quarter, its fastest clip in six years, driven by a sharp slowdown in the rate at which businesses reduced stocks of unsold goods, the government said today. Consumer spending slowed to a rate of 2 per cent after rising 2.8 per cent in the July-September period, the GDP report showed.
In December, spending adjusted for inflation edged up 0.1 per cent after rising 0.4 per cent the prior month. Personal income increased 0.4 per cent last month after increasing 0.5 per cent in November, the Commerce Department said. That was a touch above market expectations for a 0.3 per cent increase. For the whole of 2009, personal income dropped 1.4 per cent, the largest fall since 1938, but incomes rose over the last six months of the year.
Real disposable income climbed 0.3 per cent last month after rising 0.3 per cent in November. The rise in income saw savings rising to an annual rate of $534.2 billion, the highest level since June. The savings rate rose to 4.8 per cent from 4.5 per cent the prior month. For the whole of 2009, savings rose to a record $502.7 billion.
Commerce Department data also showed the personal consumption expenditures price index, excluding food and energy, rising 1.5 per cent from a year ago in December. The index, which is a key inflation measure monitored by the US Federal Reserve, increased 1.4 per cent in November.
"It suggests that the Fed still has some time to keep interest rates low. If inflation stays low, the only risk to Fed policy would be higher rates overseas," said Thayer.
The US central bank left interest rates near zero last week and repeated a pledge to hold them low for an extended period.
Reuters