Consumer spending falls again

Associated Press

Consumer spending fell for a record sixth straight month in December as recession-battered households, worried about surging layoffs, boosted their savings rates to the highest level since May.

Economists expect consumer spending, which accounts for the largest portion of total economic activity, to remain weak this year, prolonging an already painful recession.

The Commerce Department reported Monday that personal consumption spending dropped 1% in December. That was slightly worse than the 0.9% decline economists expected. The government also revised its November estimate lower to show spending fell 0.8% rather than 0.6% in that month.

Incomes, reflecting a wave of layoffs, fell for a third straight month, but the 0.2% drop was slightly better than expected. The decline in November, however, was revised to show incomes dropped 0.4%, double the initial estimate.


Still, Americans worried about the possibility of more job cuts boosted their savings rate to 3.6% of their after-tax incomes in December. That was the highest level since tax rebate checks temporarily pushed the rate up to 4.8% in May.

For the year, consumer spending rose just 3.6%, the smallest annual increase since 1961. Incomes rose 3.7%, the weakest gain since a 3.2% advance in 2003.

Another economic measure, construction spending, fell 1.4% in December, reflecting weakness in both residential and nonresidential building, according to the Commerce Department. For the year, construction activity was down a record 5.1% as home building plunged 27.2%, the biggest annual decline on records that go back to 1993.

American families are struggling with an intensifying recession that’s already the longest in a quarter-century. Overall economic growth plunged at an annual rate of 3.8% in the final three months of last year, the biggest quarterly decline since a 6.4% drop in the first quarter of 1982.


The hard times are being made more severe as consumers cut back sharply on their spending, which accounts for about 70% of total economic activity.

The savings rate for all of 2008 rose to 1.7%. Although historically low, it is well above the savings rates of recent years when soaring home prices and a booming stock market made Americans feel more wealthy and less concerned about saving.

The savings rate had slipped to a low of 0.4% in 2005, the peak of the housing boom. That was the lowest annual savings rate in seven decades. Savings had turned negative during the depths of the Great Depression.

For December, the 1% drop in consumer spending represented the sixth straight decline, a stretch not seen since the government began keeping monthly records on incomes and spending a half-century ago.