Despite Fast Growth in Incomes, Spending Was Flat in December

The Bureau of Economic Analysis observed flat consumer spending in December 2011, with personal income up 0.5 percent. The unchanged consumption figures followed five consecutive months of growth, and when adjusted for inflation, real consumption declined by 0.1 percent.

Goods purchases in the month were negative, with spending on both durables and nondurables 0.4 percent lower. Consumers did, however, increase their purchases on services, which rose by 0.2 percent. Still, the longer-term trend for consumption has been positive, as it is up 3.9 percent since December 2010.

Real personal disposable income rose 0.3 percent for the month. The income growth was the fastest pace since February 2011. Manufacturing sector wages increased by $7.4 billion for the month to $707.7 billion, reversing the decline experienced in November.

With strong growth in income and no change in spending, the overall savings rate improved from 3.5 percent in November to 4.0 percent in December. It was 5.2 percent in December 2010, reflecting its general movement downward in the second half of 2011.

There appears to be little inflation in the personal consumption numbers. In fact, while prices rose 0.1 percent for all goods and services, they fell by 0.2 percent for both durable and nondurable goods. Prices have fallen for several months now for nondurables, and this is the third consecutive month of declines for durables.

This suggests a limited ability to pass on any of the higher raw material costs experienced at the producer price level. Year-over-year data, though, suggest greater pricing pass-through for nondurables, with prices up 4.8 percent since December 2010 on nondurable goods compared with a decline of 0.5 percent on durables. The overall inflation rate for all goods and services since last year is 2.4 percent.

Chad Moutray is chief economist, National Association of Manufacturers.

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM), where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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