Consumer spending slips in December as auto sales weaken

Associated Press
Energy prices tumbled in December for the sixth straight month

U.S. consumer spending slipped in December, as the pace of motor vehicle sales slowed and more Americans saved their money.

The Commerce Department said Monday that consumer spending fell 0.3% in December, compared with a 0.5% increase in November. Cheaper gasoline and fewer auto sales accounted for most of the decline.

Energy prices tumbled 5.2% in December for the sixth straight monthly decline. The falling oil and gas costs caused consumer spending — before adjusting for price changes — to record the largest monthly decrease since September 2009.

Personal income rose 0.3% in December, aided by the steady wave of hiring over the last year. But rather than spend those gains, consumers saved 4.9% of their disposable income, up from 4.3% in November.

Despite the decrease, several indicators show that Americans are growing more comfortable about the economy and are spending money again.

"Further big real income gains and soaring confidence point to serious strength in spending," said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Consumer spending rose at an annual clip of 4.3% during the final three months of 2014, the strongest pace since early 2006, the government reported Friday. That surge helped drive overall economic growth of 2.6%, as roughly 70% of gross domestic product stems from consumer activity.

Adjusting for inflation, consumer spending during all of 2014 increased 2.5%, the strongest gain since 2006, roughly a year before the Great Recession started.

The University of Michigan reported that its consumer sentiment index stood at 98.1% in January, the highest reading since 2004. Half of the consumers surveyed expect the current expansion to continue for five years.

Similarly, incomes are rising at a slightly better pace. The Labor Department's employment cost index, which measures pay and benefits, climbed 2.2% in 2014, up from 2% the previous year. Despite the improvement, the index remains below its historical increase of 3.5%.

Another report Monday showed U.S. factories expanded last month at the slowest pace in a year, as orders, production and hiring all declined.

The Institute for Supply Management, a trade group of purchasing managers, says its manufacturing index fell to 53.5 in January from 55.1 in December. That is the third straight drop and lowest since January 2014. Any reading above 50 signals expansion.

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