WASHINGTON (AP) — Americans increased their spending at a
solid pace for the second straight month in December even though their
income was flat.
Consumer spending rose 0.4 percent in December,
compared with November when spending had increased an even stronger 0.6
percent, the Commerce Department reported Friday. That was the best gain
in five months.
Income, however, showed no gain at all in
December after a 0.2 percent rise in November. Wages and salaries were
basically flat last month, reflecting a sharp slowing in employment
growth.
For all of 2013, income growth was 2.8 percent, the
weakest performance since 2009 when income fell 2.8 percent as the
country struggled with a deep recession.
Economists are hoping that stronger economic growth will promote stronger employment and income gains
this year.
The
combination of stronger spending in December but no improvement in
income meant that consumers tapped savings to finance their spending.
The saving rate slipped to 3.9 percent of after-tax income in December,
down from 4.3 percent in November. It was the lowest monthly saving rate
since it dropped to 3.6 percent last January.
For the year, the
saving rate slipped 4.5 percent, the lowest level since the rate was 3
percent in 2007. The saving rate had fallen before the Great Recession
as surging home prices made Americans feel wealthier and more willing to
spend more and save less. However, once the recession took hold and
millions of Americans lost their jobs while home prices plunged,
Americans became more frugal and the saving rate rose, peaking at 6.1
percent in 2009 and remaining above 5 percent for the next three years.
Consumer spending is closely watched because it accounts for 70 percent of economic activity.
For
the October-December quarter, consumer spending was rising at the
fastest pace in three years, giving economists hope that the economy has
finally turned the corner to faster growth after a prolonged period of
sub-par activity since the recession ended in June 2009.
Consumers have been buying durable goods such as cars as well as non-durable products such as clothing.

While
the overall economy grew just 1.9 percent in 2013, some analysts think
growth could accelerate to around 3 percent this year. If it does, 2014
would be the best year for growth since the recession ended.
This
year, economists think the U.S. economy will get a lift from continued
gains in hiring. Further steady job growth would give more households
money to spend and help increase consumer spending.
In addition,
U.S. manufacturers are expected to gain from rising global demand. And
housing construction and auto sales are expected to strengthen further
in 2014.
Stronger growth and the improving job market are the
primary reasons the Federal Reserve is pressing ahead with a plan to
scale back its economic stimulus.
Most forecasters think the
economy will manage to withstand such factors as turmoil in emerging
economies, which have been rattled by the pullback in the Fed’s stimulus
and the prospect of higher U.S. interest rates.
One major reason
for optimism: A belief that the government will be less of a drag than
in 2013, when higher federal taxes and spending cuts trimmed overall
growth by an estimated 1.5 percentage points.
A budget deal
Congress approved earlier this month halted tens of billions in
additional spending cuts that were due to kick in this year.
Many
global investors are concerned that the Fed’s pullback in its bond
purchases will raise U.S. interest rates and cause investors to shift
money out of emerging markets and into the United States for higher
returns. Currency values in emerging economies have fallen over that
concern.
Many analysts think the Fed will keep paring its support
at each of its meetings this year until it eliminates new bond purchases
entirely in December. In making the announcement Wednesday of another
$10 billion reduction in bond purchases, the Fed cited an improving
economy, including more strength in consumer and business spending.
However,
some Fed officials have expressed concerns about withdrawing economic
support while prices are rising at such a sluggish rate. While high
inflation can be a problem, the Fed also worries if prices are rising
too slowly, a development that raises the prospect of deflation. That
can also do serious harm to an economy.
For December, prices
measured by an inflation gauge tied to consumer spending rose a modest
0.2 percent, compared with November, and were up just 1.1 percent for
the entire year, well below the Fed’s 2 percent inflation target.
Copyright 2014 The Associated Press. All rights
reserved. This material may not be published, broadcast, rewritten or
redistributed.