The Daily Item, Sunbury, PA

Politics

January 31, 2013

Consumer spending rises in December

WASHINGTON — Consumer spending climbed in December as incomes grew by the most in eight years, a sign the biggest part of the economy was contributing to the expansion as the year drew to a close.

Household purchases, which account for about 70 percent of the economy, rose 0.2 percent after a 0.4 percent gain the prior month, a Commerce Department report showed Thursday in Washington. The median estimate in a Bloomberg survey of 72 economists called for a 0.3 percent rise. Incomes rose 2.6 percent, pushing the saving rate up to a more than three-year high.

Lower fuel costs, job gains, holiday-season discounts and early dividend payouts helped to accelerate Americans’ spending last quarter, even as a plunge in defense outlays and slower stockpiling led the economy to contract at a 0.1 percent annual pace. An increase in taxes that began to shrink paychecks this month will pose a hurdle to sustaining gains in purchases.

“Consumer spending will continue to show modest growth,” Josh Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York, said before the report. “The payroll tax isn’t going to help. We’re going to see consumers continue to be cautious.”

Claims for unemployment benefits increased more than forecast last week, partially erasing a slide in the prior two weeks and reflecting the difficulty of adjusting the figures for swings at the start of a year, another report showed Thursday. Initial jobless claims rose 38,000 to 368,000 in the week ended Jan. 26, the Labor Department reported.

Projections for consumer spending in the Bloomberg survey ranged from little changed to a 0.7 percent gain.

The Bloomberg survey median called for incomes to rise 0.8 percent. The December gain was the biggest since December 2004, the month Microsoft Corp. paid a special dividend. The November reading was revised up to show a 1 percent increase from a previously reported 0.6 percent advance.

The saving rate increased to 6.5 percent, the highest since May 2009, from 4.1 percent. Wages and salaries increased 0.6 percent.

Disposable income, or the money left over after taxes, climbed 2.8 percent after adjusting for inflation, the biggest gains since May 2008.

After-tax income rose at a 6.8 percent annual rate from October through December, the biggest increase since the second quarter of 2008, a report showed Wednesday.

In addition to improving wages and salaries, some companies paid dividends and employee bonuses earlier than usual before tax rates went up this year. The Commerce Department estimated about $26.4 billion of the increase in incomes last quarter was attributable to early dividend payments and another $15 billion reflected bonuses and other types of irregular pay.

That signals the surge in incomes last quarter will be reversed in the first three months of 2013, when those payments took place in prior years.

Adjusting consumer spending for inflation, which renders the figures used to calculate gross domestic product, purchases rose 0.2 percent after a 0.6 percent increase in the previous month, Thursday’s report showed.

Spending on durable goods, including automobiles, increased 1.3 percent after a 2.9 percent advance.

The figures provide a monthly breakdown of the quarterly data released yesterday, shedding more light on the trajectory of household spending entering 2013.

Consumer purchases grew at a 2.2 percent pace in the fourth quarter, up from 1.6 percent in the previous three months, as Americans bought more durable goods including automobiles.

The fourth-quarter drop in GDP was largely due to a decline in government outlays and a smaller gain in inventories that subtracted a combined 2.6 percentage points from growth, Commerce Department data showed yesterday.

Thursday’s report showed a price gauge tied to consumer spending, which are the figures tracked by Federal Reserve policymakers, rose 1.3 percent in 2012 after advancing 2.4 percent the prior year. It was the smallest annual increase since 2008 and compares with the central bank’s goal of 2 percent.

Excluding food and energy costs, prices climbed 1.4 percent in 2012, down from a 1.9 percent increase the prior year.

The need to spur growth and end a four-year long period of joblessness above 7.5 percent, combined with little inflation, help explain why Federal Reserve policy makers yesterday repeated they’ll keep pumping money into the economy.

“With appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline,” the central bank said in a statement. Household spending “advanced,” though “the unemployment rate remains elevated,” it said.

Amazon.com, the world’s largest Internet retailer, this week reported a 22 percent jump in fourth-quarter in sales as more shoppers turned to its broad product selection and speedy shipping for holiday gifts.

Recent reports signal consumer confidence and spending may cool this quarter, in part due to changes in fiscal policy. Congress on Jan. 1 let the payroll tax revert to 6.2 percent from 4.2 percent while avoiding broad-based income tax increases. Lawmakers are now wrangling over spending reductions scheduled for March 1 that threaten to further slow the economy.

The Bloomberg Consumer Comfort Index declined to minus 36.4 in the week ended Jan. 20, the weakest since early October, from minus 35.5 the prior period. The measure has fallen for three straight weeks, the longest slump since August.

Meanwhile, hiring is improving. Labor Department data may show Friday that payrolls grew by 165,000 in January after rising 155,000 the prior month, according to the Bloomberg survey median. Unemployment may have held at 7.8 percent, economists predicted.

Automobile purchases are leading the pickup in demand as Americans replace older vehicles and automakers offer new models. Cars and light trucks sales in November and December posted the best back-to-back showing since early 2008, according to Ward’s Automotive Group.

Ford, which has introduced five new electric- powered models in the past year, expects its sales of hybrid vehicles to surge by fivefold in January to start a record year for the company.

Thursday’s figures also showed price pressures are contained. An index of inflation tied to spending patterns was unchanged in December from the prior month.

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