US Consumer spending plunges to a 47-year low

February 2nd, 2009 - 10:58 pm ICT by IANS  

Washington, Feb 2 (IANS) US consumers cut spending for a sixth straight month in December, capping off the worst year for consumer spending since 1961 and pointing to a further slide in the US economy reeling from its worst crisis in decades.A Commerce Department report released Monday showed spending by individuals fell one percent December, after dropping a revised 0.8 percent in November, slightly less than a 0.9 percent drop forecast by economists.

“The report shows that consumers are in a mood to rebuild their savings but not to go out and spend,” said Mark Vitner, economist at Wachovia, cited by CNNMoney.com.

“Generally that’s a good thing, but not when everyone does it at the same time.”

December marked the sixth straight month in which consumers cut back on their spending, a decline that accelerated dramatically in the last three months.

For the fourth quarter, spending fell a record 8.9 percent - the worst quarter for spending since the Commerce Department began tracking that statistic in 1947.

Spending for the full year rose just 3.6 percent, the lowest level in 47 years.

The report also included 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 1.7 percent rise from year-earlier levels, below the 1.9 percent posted in November.

Half of December’s consumer spending declines were due to falling prices as inflation continues to moderate - especially on falling oil and gas prices. But Vitner said as gas begins to creep up in price, consumer spending may actually rise in the coming months as well.

Personal income fell 0.2 percent in December, following a revised 0.4 percent drop in the previous month. Economists had forecast another 0.4 percent decline.

Still, the drop in prices far outpaced the decline in personal income, leading to a modest 0.3 percent rise in real income in the period.

Also because income fell less than spending fell, consumers posted a savings rate of 3.6 percent. That means the average household saved $3.60 on every $100 of after-tax income, compared with $2.80 in November.

The American savings rate had been near zero for quite some time, but has been creeping up since the summer as consumers curtailed their spending.

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