Early sales cut December spending
WASHINGTON — 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 percent in December, compared with a 0.5 percent increase in November. Cheaper gasoline and fewer auto sales accounted for most of the decline.
Consumers responded to early promotions by doing most of their Christmas shopping in October and November, leading to the biggest jump in consumer spending last quarter in almost nine years. For 2015, a pick-up in wage growth will be needed to ensure households remain a mainstay of the expansion as the economy tries to ward off succumbing to a global slowdown.
“Consumers are in a good mood coming into 2015, and we think that’s likely to continue,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit. “The prospects for 2015 look very encouraging.”
Energy prices tumbled 5.2 percent in December for the sixth straight monthly decline. 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 percent in December, aided by
the steady wave of hiring over the past year. But rather than spend those gains, consumers saved 4.9 percent of their disposable income, up from 4.3 percent in November.
Despite the decrease in December spending, 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. “[We] would not be surprised to see gains approaching 5 percent annualized in the spring.”
Consumer spending rose at an annual clip of 4.3 percent 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 percent, as roughly 70 percent of gross domestic product stems from consumer activity.
Adjusting for inflation, consumer spending in 2014 increased 2.5 percent, the strongest gain since 2006, about a year before the recession started.
U.S. construction spending accelerated in December as building activity increased for new houses and governmentbacked highways.
The Commerce Department said Monday that construction spending rose 0.4 percent in December. Total construction spending in 2014 increased 5.6 percent to $961 billion, with the gains slightly below the pace of 5.7 percent in 2013.
Spending on single-family houses rose 1.2 percent in December from the previous month. Highway and street construction grew by 2.1 percent and factory-building by 1.9 percent. Construction of schools and commercial centers fell in December.
The gains were strong enough that Michael Gapen, an analyst at Barclays bank, said the economy likely expanded at an annual pace of 2.8 percent in the final three months of last year, compared with the 2.6 percent estimate reported by the government last week.
In 2014, spending on offices, power plants, factories and lodgings climbed significantly, potentially signaling broader economic growth in 2015 that could further boost residential construction.
Factories expanded last month at the slowest pace in a year, as orders, production and hiring all declined. The figures suggested manufacturing may not add much to growth in the first few months of 2015.
The Institute for Supply Management, a trade group of purchasing managers, said Monday that 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. Still, any reading above 50 signals expansion.
Manufacturing helped accelerate economic growth last year as Americans bought more cars and businesses spent more on industrial machinery and equipment. But slower overseas growth and cutbacks in business investment in oil and gas drilling equipment are weighing on factory output. A labor dispute at West Coast ports is also disrupting supply chains for many industries.
New orders grew last month, but at the slowest pace in a year, the survey found. That suggests manufacturing growth will remain modest. Factories added jobs, but at the weakest pace since June.
Still, economists weren’t overly concerned by the report. Most said it is consistent with steady growth in the first quarter.
“This decline is no reason to panic,” said Paul Ashworth, an economist at Capital Economics, in a note to clients. The report probably reflects the effect of the stronger dollar on large U.S. manufacturers that export many of their goods, he said. It does not capture the services firms, such as retailers, that are benefiting from cheaper gas, which has lifted Americans’ spending power, Ashworth added.