U.S. consumer spending down 0.2% in December

WASHINGTON — U.S. consumers slowed their spending by 0.2% in December, cutting back for a second-straight month in a worrisome sign for an economy struggling under the weight of a still out-ofcontrol pandemic.

The decline reported Friday by the Commerce Department followed a seasonally adjusted 0.7% drop in November. It was the latest sign that consumers, whose spending is the primary driver of the U.S. economy, are hunkered down and avoiding traveling, shopping and dining out. Since making a brief bounce-back from the viral pandemic last spring, consumer spending has barely grown. Sales at retailers have declined for three straight months.

Friday’s report from the government also showed that personal incomes, which provide the fuel for spending, rose a modest 0.6% after two months of declines. Yet Americans who have been fortunate enough to keep their jobs have been largely stockpiling savings rather than spending. That could bode well for the economy later this year, once consumers feel more willing and are more able to spend.

The latest figures reflect a shaky economy. On Thursday, the government estimated that the economy grew at a 4% annual rate in the final three months of 2020 but shrank last year by the largest amount in 74 years. At the same time, the job market is faltering, with nearly 10 million jobs still lost to the pandemic, which broke out 10 months ago. Hiring has slowed for six straight months, and employers shed jobs in December for the first time since April.

Last week, 847,000 laid-off Americans applied for unemployment benefits, an elevated figure that showed that many companies keep cutting jobs as the pandemic continues to rage.

Friday’s government report on consumer spending showed that inflation by a measure preferred by the Federal Reserve rose 0.4% in December after no change in October and November. That left prices up 1.3% over the past 12 months, well below the Fed’s 2% target.

The savings rate remained at an elevated 13.7% of after-tax income in December, up from 12.9% in November. Americans’ savings have reached high levels since the pandemic hit nearly a year ago, reflecting business restrictions and the reluctance of many to leave home. Economists estimate that households have accumulated about $1.6 trillion in savings since the onset of the pandemic.

In the final three months of 2020, consumer spending, which accounts for about 70% of the economy, grew at a 2.5% annual rate.

Gregory Daco, chief U.S. economist at Oxford Economics, said he thinks consumer spending will rise 6.4% for the entire year after having fallen 3.9% in 2020.

“We believe increased vaccinations, stable household finances and rebounding confidence will lift consumer spending growth” this year, Daco said.

In a separate report Friday, wages and benefits for U.S. workers rose in the last quarter of 2020, putting the year in somewhat of a normal range as the pandemic continued to rankle the economy.

Total U.S. workers compensation rose 0.7% in the

October-December quarter, an increase over the previous two quarters, the Labor Department said Friday. Growth was 0.5% in the second and third quarters, down from 0.8% in the first three months of the year.

For the year, wages and benefits grew 2.5%, with wages and salaries up 2.6% and benefits, which include Social Security, grew 2.3%.

Wages and salaries grew 0.9% in the final quarter of 2020 while benefits rose 0.6%.

Compensation costs for private industry workers rose 0.5% in the quarter and 2.6% in 2020.