Income, spending edge past forecasts

Spending posts narrow gain in December in latest sign of weak holiday shopping period; income posts stronger gain.

Subscribe to Economy
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)

Fed's aggressive cut fans fear
The central bank's decision to slash rates are raising inflation fears as the economy shows signs of slowing.

NEW YORK (CNNMoney.com) -- Consumer spending posted only a narrow gain in December, another sign of a weak holiday shopping season and a slowing economy, although readings on spending and personal income were a bit better than forecasts, according to a government report Thursday.

Spending by individuals rose 0.2%, well below November's 1% rise, which was revised slightly lower in the Commerce Department report. Economists surveyed by Briefing.com had forecast only a 0.1% gain in the month that included the key holiday shopping period.

The pickup in spending was due primarily to higher prices. In constant dollars, spending was unchanged in the latest reading.

Personal income rose 0.5% in December, after a 0.4% rise the previous month. Economists had forecast another 0.4% rise.

The rise in personal income outpaced the change in prices, leading to a 0.2 percent rise in real income in the period. It was the first time since September that income gains had outpaced price increases.

Because income gains outpaced spending, consumers posted a narrowly positive savings rate in the month - 0.2 percent. That means the average household saved $2 on every $1,000 of after-tax income. In November, after-tax income essentially matched spending, leaving a zero savings rate.

The report also includes the so-called core PCE deflator - a key reading closely watched by the Federal Reserve that measures prices paid by consumers for goods and services other than food and energy. It showed a 2.2% rise from year-earlier levels, the same as in November and in line with forecasts.

The Fed is generally believed to want to see the core PCE deflator between 1% and 2%. But the fact that it effectively didn't move from November means the central bank is more likely to continue to focus on the slowdown of the economy rather than inflation as it makes decisions about interest rates going forward.

On Wednesday, the Federal Reserve cut interest rates for the second time in eight days. Its statement said that while it will continue to monitor price pressures, it expects inflation to moderate in coming quarters.

In other economic news, the Labor Department reported a jump in initial jobless claims for last week. Those filing for first-time benefits jumped by 69,000 to 375,000. Economists had only been looking for claims of 320,000 in the latest reading.

The Labor Department also reported that the Employment Cost Index rose 0.8% in the fourth quarter, matching both the increase seen in the third quarter and the consensus forecast of economists. The wage component of the index increased 0.8%, although the benefit costs increased at a 0.9% rate. To top of page

Photo Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Sponsors

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.