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Consumer spending fell in December by the largest amount since the economy came out of recession in mid-2009, but the decline coincided with a huge stock-market decline and other worries that have since faded.
The numbers: Amid the biggest stock-market plunge in decades, Americans apparently reduced spending in December by the largest amount since the economy exited recession in 2009.
Consumer spending sank 0.5% in December, the government said Friday. The decline was a touch higher than the MarketWatch forecast.
Consumers spent less on new cars and trucks, likely because of discounts and other specials. And they also spent less on electricity and gas. So the decline in spending wasn’t entirely bad.
The drop-off in spending was not a big surprise giving a sharp decline in retail sales in December, but it overstates the weakness in the economy at year end. Other reports such as fourth-quarter GDP suggest U.S. growth didn’t slow quite as dramatically as the spending figures suggest.
Read: Economy slows to 2.6% in fourth quarter, GDP shows, but it still shows lots of muscle
The December report also contains some quirks that raise questions about how accurately it reflects the economy at year end. One of the quirks: The savings rate soared to 7.6% from 6.1%, an atypically large increase.
What contributed to the jump in savings was a 1% increase in personal incomes that was the biggest since 2012.
Income growth was padded by a few unusual factors unlikely to be repeated soon, though. The federal government boosted farm subsidies — a move meant to protect against China’s reaction to U.S. tariffs — and software developer VMware VMW, +4.74% issued a special $11 billion onetime dividend.
Income growth fell 0.1% in January. The latest report, long delayed by the partial government shutdown, includes income figures for both January and December, but just the spending figures for December.
Inflationary pressures, meanwhile, were muted again.
The 12-month rate of inflation slowed to 1.7% in December from 1.8%, as measured by Federal Reserve’s preferred PCE gauge. The core rate that excludes food and energy was flat at 1.9%.
The PCE index rose 0.1% on the month. The core rate increased 0.2%.
Read: The rise of the robots and decline of inflation: How AI is keeping prices low
Big picture: The U.S. economy clearly slowed toward the end of 2018, but unlike consumer spending in December, it did not fall off a cliff.
By and large, 2018 was a strong one for consumers, though. Personal incomes rose 4.5% — the most since 2015 — and that helped spending increase by the largest amount since 2007.
Also Read: Consumer confidence rebounds after Wall Street rally, end of shutdown
What’s more, early evidence in 2019 points to stable if slower growth as the economy closes in on setting a record for longest expansion ever.
The stock market has recovered almost all its losses from December, for one thing, and consumer confidence has rebounded as well. The Federal Reserve also announced it would stop raising interest rates for the time being. Rising prospects for trade deal with China is budding tailwind, too.
Read: Small-town U.S.A. falls further behind urban America in job opportunities
Market reaction:The Dow Jones Industrial Average DJIA, +0.63% and S&P 500 SPX, +0.70% rose sharply in Friday trades on hopes for a trade deal with China soon. The 10-year Treasury yield TMUBMUSD10Y, +0.70% rose a few basis points to 2.74%.
