Friday, January 31, 2014

Consumption Continues to Grow in Face of Weak Income Gains

Consumers continued to increase their spending in December, despite seeing no gains in their income. Income growth was weak in the fourth quarter, rising just 0.1% over the quarter. Despite this weak growth consumer spending was strong throughout the fourth quarter. This is also seen in consumption’s strong contribution to fourth quarter growth. The increased spending coupled with no wage growth led the savings rate to drop to the lowest level in nearly a year.

Personal consumption grew by 0.4% in December, down from 0.6% the previous month. Despite this slight decline, consumption rose by 0.4% on average in the fourth quarter, up from 0.25% in the third. Increased spending was focused on non-durable goods and services, which saw gains of 1.5% and 0.4% respectively. Gains in consumption were held back by durable goods spending which fell 1.8% over the month, driven lower by low auto sales.

Income growth has slowed considerably near the end of the year, failing to grow in 2 out of 3 months in the fourth quarter. Tax payments have risen while wage income growth has been lower than expected. Real disposable income remains less than 1% above year-ago levels.

Increased spending with little wage growth has meant that the savings rate has fallen, reaching 3.9% in December. This is its lowest level since January 2013.

Prices increased modestly as measured by the PCE deflator. Prices rose 0.2% in December and are now 1.1% above year ago levels.

Read the BEA release.

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