Consumer Spending Deteriorates Further

The current recession in economic activity continues to intensify its negative effect on consumer spending. A Commerce Department report released Monday showed consumer spending decreased $102.4 billion, or 1.0% in December, after dropping a revised $77.8 billion, or 0.8% in November. That was slightly worse than the 0.9% decline economists expected. Personal consumption expenditures [PCE], which accounts for more than two-thirds of the nation’s gross domestic product, fell for a record sixth straight month in December 2008, once again underscoring a continued deterioration in economic activity.

The Commerce Department also said personal income decreased $25.3 billion while disposable personal income [DPI] decreased by $25.1 billion, or 0.2%, respectively. This is the third straight income-decline, after a 0.4% decrease the prior month. Clearly, U.S. households remain worried about surging layoffs (almost 2.6 million lost in FY2008) and record declines in home values prompting them to increase their savings rate. Personal saving as a percentage of disposable personal income was 3.6% in December, compared with 2.8% in November suggesting consumers are earning more than they are actually spending. 3.6% DPI is the highest percentage-rate since tax rebate checks temporarily pushed the rate up to 4.8% in May. Meanwhile, disposable personal income less personal outlays came in at $378.6 billion last month, compared with $299.1 billion in November.

Today’s report also showed personal income receipts on assets (personal interest income +
personal dividend income) decreased $29 billion, compared with a decrease of $28.8 billion. Purchases of durable goods decreased too, posting a 0.8% decline in December, in contrast to an increase of 1.0 in November. Nondurable goods posted a 1.8% decline in December, partly reflecting lower-lows in gasoline, against an increase of 0.9% in November.

On the inflation front today’s report showed inflation-adjusted spending decreased 0.5% in December, versus an increase of 0.3% in November. The weak state of the economy apparently is keeping inflation pressures muted. For the whole of fiscal 2008, spending rose 3.6%, the smallest gain since 1961.

The sharpness of the decline in consumer demand suggests that the consumer spending remains at levels that don’t appear, at least for the moment, to be easing.

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About Ron Haruni 1068 Articles
Ron Haruni is the Co-Founder & Editor in Chief of Wall Street Pit.

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