U.S. Household Spending Falls, While Stimulus Boosts Incomes

U.S. household spending fell for a second-straight time in December and incomes rose with more pandemic relief late in the month, highlighting how Covid-19 continues to impact consumers.

Purchases decreased 0.2% from the prior month, following a downwardly revised 0.7% decline in November, a Commerce Department report showed Friday. That compared with estimates for a 0.4% drop. Personal incomes rose 0.6%, stronger than the 0.1% gain projected.

U.S. Household Spending Falls, While Stimulus Boosts Incomes

Some states and cities reimposed restrictions on businesses and activity in November and December, leading to nearly half a million job losses in the leisure and hospitality sector and restraining spending.

Personal incomes already received a boost from the passage of the $900 billion pandemic relief package in late December. The bill included an additional round of stimulus payments and an extra $300-a-week in supplemental jobless benefits. Additional income should help bolster spending going forward.

The Commerce Department said the increase in December income partly reflected an increase in pandemic unemployment compensation, the supplemental weekly payment for the jobless.

The personal saving rate, which had surged to a record in April as a result of the rise in government social benefits, rose to 13.7%, the first increase since April.

Government Payments

Incomes were bolstered in December by a 2.3% increase in government transfer payments, a category that includes unemployment insurance. At the same time, wages and salaries advanced 0.5% from the prior month. Income from dividends also rose sharply.

Inflation-adjusted personal spending fell 0.6% in December after a 0.7% decline. Last month, outlays for both goods and services decreased. Services spending fell for a second month, while purchases of goods dropped 1.4%, matching the November drop.

Throughout the pandemic there’s been very little inflationary pressure, and December was no exception. The index of consumer prices that the Federal Reserve officially uses for its target rose 1.3% in December from a year earlier. The core price index, which excludes more-volatile food and energy costs, increased 1.5%. Both were the largest year-over-year gains in three months.

Looking ahead, many economists are expecting price pressures to remain broadly tame this year, with a temporary pop in inflation metrics in the second quarter.

©2021 Bloomberg L.P.

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