After falling 0.3%, US consumer spending has hit its weakest point dating back to 2009. Saving rate rises, real disposable income was up 0.5%, activity specific to factories was slow in January, and measures of inflation pulled back from the targeted 2%.
In December, a greater number of Americans were holding onto their money. In a statement from the US Commerce Department, in November, consumer spending saw a 0.5% increase but the following month, it dropped 0.3%. The majority of the decline was blamed fewer sales of automobiles coupled with the low price at the gas pump. For the sixth consecutive month, energy prices declined, falling in December 5.2%.
As far as personal income, this increased in December 0.3%, helped by significant hiring in 2014. However, instead of spending the additional earnings, most consumers put just under 5% of their disposable income aside, which was up from the prior month.
Although US consumer spending declined, there are a number of things indicating that people in America are finally feeling more comfortable about the economic situation. As a result, some are starting to spend again.
As pointed out by Ian Shepherdson, Pantheon Macroeconomics’ chief economist, bigger income gains and boosted confidence show major strength in spending so seeing gains nearing 5% is not overly surprising.
At an annual pace of 4.3% for the first three months in 2014, US consumer spending climbed, hitting its strongest pace since 2006. As a result of that surge, overall economic growth climbed 2.6%, with about 70% of the GDP coming from consumer activity.
Incomes are also rising but at a somewhat better pace. According to the employment cost index from the Labor Department, which is responsible for measuring benefits, as well as pay, incomes rose 2.2% last year, which was up 2% from 2013. Even with noted improvement, the index is still below 3.5%, a historical increase.
For the most part, momentum will be depend on if the economy keeps creating jobs, with most analysts believing that will be exactly what happens. Economists believe this Friday the US will show that 230,000 new jobs were added. If that proves to be the case, at minimum 200,000 jobs were added every month for the past year.