Consumer spending growth eases
Buffeted by soaring fuel prices and tighter credit, Americans increased their spending at the weakest pace in six months. In other signs of trouble, applications for jobless benefits last week soared to their highest number since Hurricane Katrina.
The Commerce Department reported Thursday that consumer spending edged up just 0.2% in December -- the year’s peak shopping season. That was down from a 1% gain in November. It was the weakest performance since a similar 0.2% rise in June of last year.
Meanwhile, the Labor Department reported that the number of laid-off workers filing applications for unemployment benefits increased by 69,000, to 375,000, last week. That was the highest level for jobless claims since the week of Oct. 8, 2005, when the economy was dealing with the disruptions caused by Katrina and other Gulf Coast hurricanes.
The increase in jobless claims was more than triple what economists had been expecting, although part of the rise was blamed on technical difficulties in adjusting the figures around the Martin Luther King Jr. holiday. Analysts said the greater concern was the slowdown in consumer spending, which they predicted would continue in the current quarter, the period many believe will be the maximum danger point for a recession.
The overall economy, as measured by the gross domestic product, slowed to an anemic growth rate of 0.6% in the final three months of 2007, half of what had been expected, and many analysts think it could dip into negative territory in this quarter. By one definition, a recession is when GDP is negative for two consecutive quarters.
David Wyss, chief economist at Standard & Poor’s, said he was forecasting that GDP would decline at an annual rate of 1% in the current quarter, in large part because of the expected further slowing in consumer spending, which accounts for two-thirds of economic activity.
“Happy holidays is not a phrase that retailers are using to describe this year’s shopping season,” said Joel Naroff, chief economist at Naroff Economic Advisors.
Despite widespread discounting, retailers slogged through their weakest Christmas sales season in five years as consumer confidence was shaken by the deep slump in housing, a severe credit squeeze and last year’s big increases in the cost of energy.
The jobless rate rose significantly in December, jumping to 5% from 4.7% in November. That was the biggest one-month increase since the period immediately following the September 2001 terrorist attacks.
The January jobless number will be released today, with analysts expecting it to be unchanged at 5% as payroll growth continues to be sluggish with an expected increase of about 65,000 jobs.
The weakening job market is keeping labor cost pressures contained. The Labor Department’s employment cost index posted a 0.8% rise in the final three months of last year, a moderate increase that matched the rise in the July-September period.
The 0.2% rise in consumer spending looked even worse when price changes were removed.
Inflation-adjusted spending did not increase at all last month after a 0.4% rise in November and a 0.1% decline in October.
The government said personal incomes rose by 0.5% in December, the best showing since a similar increase in September.
An inflation gauge tied to spending that the Federal Reserve watches closely rose 0.2% in December and left prices, excluding energy and food, up by 2.2% over the last 12 months.
