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US consumer spending drops in December thanks to weak car sales (+video)

US consumer spending fell 0.3 percent in December, compared to a 0.5 percent increase in November. Cheaper gasoline and fewer auto sales accounted for most of the consumer spending decline.

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    A woman pays cash while checking out at a Target Store in Colma, Calif. The Commerce Department reported a drop in consumer spending and income for December on Monday, Feb. 2, 2015.
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US 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 to a 0.5 percent increase in November. Cheaper gasoline and fewer auto sales accounted for most of the decline.

Energy prices tumbled 5.2 percent in December for the sixth straight monthly decline. The falling oil and gas costs causedconsumer 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 spendthose gains, consumers saved 4.9 percent of their disposable income, up from 4.3 percent in November.

Despite the decrease, several indicators show that Americans are growing more comfortable about the economy and arespending money again.

"Further big real income gains and soaring confidence point to serious strength in spending," said Ian Shepherdson, chief economist at Pantheon Macroeconomics. "(W)e 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 during all of 2014 increased 2.5 percent, the strongest gain since 2006, roughly a year before the Great Recession started.

The University of Michigan reported that its consumer sentiment index stood at 98.1 percent in January, the highest reading since 2004. Half of the consumers surveyed expect the current expansion to continue for the next five years.

Similarly, incomes are rising at a slightly better pace. The Labor Department's employment cost index, which measures pay and benefits, climbed 2.2 percent in 2014, up from 2 percent the previous year. Despite the improvement, the index remains below its historical increase of 3.5 percent.

Much of the ongoing momentum will depend on whether the economy continues to spawn jobs, and most believe that that will be the case.

Economists expect the U.S. to report Friday that employers added 230,000 jobs. If the forecast proves accurate, the economy will have gained at least 200,000 jobs in each of the past 12 months, the best streak since the 16 months of gains in excess of 200,000 between 1993 and 1994.

 
 
 

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