Personal Spending Was Up Strongly in December, with Lowest Saving Rate Since September 2005

The Bureau of Economic Analysis said that personal spending was up 0.4 percent in December, extending the robust 0.8 percent gain seen in November. Americans have continued to increase their purchasing, making personal consumption expenditures one of the bright spots in the U.S. economy. Over the past 12 months, personal spending has risen by 4.6 percent, off just slightly from the 4.7 percent pace observed in the prior report. In December, durable goods spending increased by 0.7 percent, but nondurable goods were off by 0.2 percent. On a year-over-year basis, goods spending for durable and nondurable goods were increased at very healthy rates, up 5.5 percent and 4.7 percent, respectively, since December 2016.

Likewise, the savings rate fell to its lowest rate since September 2005, down from 2.5 percent in November to 2.4 percent in December. The savings rate has trended lower since peaking at 4.1 percent in February. It is yet another illustration that Americans have accelerated their purchasing—something helped to boost holiday spending and provide a significant boost to real GDP growth in the fourth quarter.  

Meanwhile, personal incomes were also higher, up 0.4 percent. Over the past 12 months, personal incomes have risen 4.1 percent in December, up from 3.8 percent in November and the best reading in two years. In addition, manufacturing wages and salaries edged up from $841.3 billion in November to $842.1 billion in December. That translated into a 4.0 percent increase in manufacturing wages and salaries over the past 12 months, up from $809.4 billion in December 2016.

In other news, the personal consumption expenditure (PCE) deflator inched up by 0.1 percent in December. Total prices for consumers were higher despite a 1.2 percent decline in energy goods and services costs. Indeed, core inflation—which excludes food and energy—increased by 0.2 percent in December.

Overall, pricing pressures have drifted slightly higher over the past couple months but remain quite modest and largely under control, at least for now. After seeing pricing pressures accelerate strongly earlier in 2017—with the PCE deflator peaking at 2.2 percent year-over-year in February—inflation has pulled back since then. Since December 2016, the PCE deflator has risen by 1.7 percent, down from 1.8 percent in the previous report. Core PCE inflation was up 1.5 percent year-over-year in December, unchanged from November’s reading and well below the Fed’s goal of 2 percent.

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM) and the Director of the Center for Manufacturing Research for The Manufacturing Institute, 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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