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US consumer spending flat; savings at three-year high

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US consumer spending was unchanged in December as households cut back on purchases of automobiles and unseasonably mild weather weighed on demand for utilities, but a jump in savings to a three-year high suggested there is enough muscle to boost consumption in the months ahead.

[WASHINGTON] US consumer spending was unchanged in December as households cut back on purchases of automobiles and unseasonably mild weather weighed on demand for utilities, but a jump in savings to a three-year high suggested there is enough muscle to boost consumption in the months ahead.

The Commerce Department said on Monday the unchanged reading in consumer spending followed an upwardly revised 0.5 per cent increase in November. When adjusted for inflation, consumer spending edged up 0.1 per cent after a 0.4 per cent gain in November.

Economists polled by Reuters had forecast consumer spending, which accounts for more than two-thirds of US economic activity, edging up 0.1 per cent in December after a previously reported 0.3 per cent gain in November.

Consumer spending increased 3.4 per cent in 2015 after advancing 4.2 per cent in 2014.

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That data was included in last Friday's fourth-quarter gross domestic product report, which showed consumer spending slowed to a 2.2 per cent annual rate from the third quarter's brisk 3 per cent pace.

Moderate consumer spending, weak export growth and ongoing efforts by businesses to reduce unsold merchandise piled up in warehouses helped restrict economic growth to a 0.7 per cent pace in the fourth quarter. More cutbacks in investment by energy firms struggling with lower oil prices also hurt GDP growth.

In December, income rose 0.3 per cent after a similar gain in November. Wages and salaries increased 0.2 per cent after shooting up 0.5 per cent in November. Income in 2015 increased 4.5 per cent, the largest increase since 2012, after rising 4.4 per cent in 2014.

With income outpacing spending, savings surged to US$753.3 billion in December, the highest level since December 2012, from US$717.8 billion in November.

Higher savings and rising house prices should help to soften the blow from a recent stock market sell-off and drive spending in early 2016.

With consumption soft, inflation retreated in December.

A price index for consumer spending slipped 0.1 per cent after ticking up 0.1 per cent in November. In the 12 months through December, the personal consumption expenditures (PCE) price index, however, rose 0.6 per cent after increasing 0.4 per cent in November.

That was the largest increase since December 2014. Year-over-year inflation rates are rising as the weak readings during the year drop out of the calculation. Excluding food and energy, prices were unchanged after rising 0.2 per cent in November. The so-called core PCE price index increased 1.4 per cent in the 12 months through December after a similar gain in November.

Core PCE is the Federal Reserve's preferred inflation measure and remains well below the US central bank's 2 per cent target.

REUTERS

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