Personal Spending Slips for Second Consecutive Month

Personal spending fell 0.2% in December in the second month of declines.

The Bureau of Economic Analysis (BEA) reported Friday (Jan. 27) that the December drop followed a 0.1% drop in November.

Spending had been rising over the prior three months — up 0.8% in October, 0.6% in September and 0.7% in August, according to the report.

The most recent drop was greater than the 0.1% the market had forecast, TradingView reported Friday.

“Consumer spending is cooling due to high interest rates and prices for goods and services and as the holiday season wrapped up,” according to the report.

Prices increased 0.1% in December, or 0.3% when food and energy are excluded, according to the BEA report.

The prices for services increased 0.5% and those for food increased 0.2%, while prices for goods dipped 0.7% and those for energy plunged 5.1%, the report said.

Compared to a year ago, prices were up 5.0%, with rises across all categories. The prices were up 11.2% for food, 6.9% for energy, 5.2% for services and 4.6% for goods, year over year.

The December decline in personal spending was led by a $95 billion drop in spending for goods. The decreases were widespread, but gasoline and motor vehicles and parts were especially hard hit, according to the BEA report.

That drop was partially offset by a $53 billion increase in spending for services, with housing, transportation (mainly air transportation) and healthcare leading the way, the report said.

At the same time, personal income rose 0.2% in December. This was lower than the 0.3% increase seen in November and the 0.8% surge in October.

The December gains in personal income were led by compensation — with increases in industries producing both services and goods — and proprietors’ income, per the report.

With the BEA report showing the smallest gain in personal income in eight months and moderate wage growth, it suggests consumer spending may continue to be challenged in the coming months, Reuters reported Friday.

“The Fed needs to tread cautiously here with the economic outlook starting to darken,” FWDBONDS Chief Economist Christopher Rupkey told Reuters Friday. “Policymakers are closer to the end than the beginning in their inflation fight.”

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