USA Spending Falls ?

U.S. Consumer Spending Falls for Sixth Straight Month


By T. Homan

(Bloomberg) -- Consumer spending in the U.S. fell in December for a record sixth consecutive month, capping the worst year since 1961, a slump that is likely to persist as companies slash payrolls.

The 1 percent drop in purchases was larger than forecast and followed a 0.8 percent decrease in November, the Commerce Department said today in Washington. The Federal Reserve’s preferred measure of inflation was little changed for a third month.

The loss of almost 2.6 million jobs last year and record declines in home values have shaken confidence, indicating sales and prices are likely to keep retreating. President Barack Obama is pushing Congress to approve a stimulus package that includes tax cuts intended to boost consumer spending.

“Consumers continue to be pulling back, and the pace of that does not appear to be easing,” said Julia Coronado, a senior economist at Barclays Capital Inc. in New York, which accurately forecast the drop in spending. “Consumers are not going to be spending anytime soon.”

Economists forecast spending would fall 0.9 percent, according to the median of 61 estimates in a Bloomberg News survey. Projections ranged from declines of 0.6 percent to 1.7 percent.

Incomes Drop

Today’s report also showed incomes fell 0.2 percent in December, the third straight decline, after a 0.4 percent decrease the prior month. It was the longest stretch of decreases since the three months ended in January 1954.

The figures raise more concerns about deflation as prices cool. The price gauge tied to spending patterns increased 0.6 percent from December 2007. The Fed’s preferred gauge of prices, which excludes food and fuel, was up 1.7 percent from December 2007, the smallest gain in almost five years.

Consumer spending rose 3.6 percent for all of 2008, the smallest gain since 1961.

Companies are slashing prices to attract shoppers during the recession, a move that is dragging down profits. EBay Inc., the world’s biggest Internet auctioneer, reported its first quarterly decline on Jan. 22. Revenue fell 6.6 percent to $2.04 billion as sellers cut prices and the company boosted promotions to lure more holiday customers.

The decrease in spending pushed the savings rate up to 3.6 percent from 2.8 percent in November. A positive rate suggests consumers are earning more than they are spending.

Disposable Income

Disposable income, or the money left over after taxes, increased 0.3 percent after adjusting for inflation.

Today’s report showed inflation-adjusted total spending dropped 0.5 percent following a 0.3 percent gain in November. Price-adjusted purchases of durable goods, such as autos, furniture, and other long-lasting items, decreased 0.8 percent. Purchases of non-durable goods decreased 1.8 percent, partly reflecting the slump in gasoline, and spending on services, which account for almost 60 percent of all outlays, climbed 0.1 percent.

Consumer spending dropped at a 3.5 percent annual pace in the fourth quarter after decreasing at a 3.8 percent pace in the previous three months, the Commerce Department said Jan. 30. It was the first time since records began in 1947 that declines in spending exceeded 3 percent in consecutive quarters. The economy shrank 3.8 percent, the most since 1982