Consumers spent more than expected last month despite flat incomes

WASHINGTON -- Consumers opened their wallets more than expected last month even though their incomes failed to grow, another indication the economy picked up steam heading into the new year, the Commerce Department said Friday.

Spending rose 0.4% in December after an upwardly revised 0.6% increase the previous month. Economists had projected so-called personal-consumption expenditures increased only 0.2% last month.

“The consumer has a lot of spending momentum and is off to a good start for 2014,” said Chris Rupkey, chief economist at Bank of Tokyo-Mitsubishi in New York.

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But the recent downturn in the stock market could cause that to change because people won’t feel as wealthy with the value of their investments and retirement funds declining, he said.

Consumers spent more even though personal income was flat last month, a worrisome sign for future activity. Economists had expected incomes to grow by 0.2%, the same as they did in November.

December was the weakest month for income growth since October, when there was a decline of 0.1%.

Increased spending combined with flat incomes led Americans to save less. The savings rate was 3.9% in December, down from 4.3% the previous month to the lowest level since January 2013.

Still, inflation remained well in check. The so-called core rate over the previous year increased 1.2% in December, up slightly from the previous month but below the Federal Reserve’s target of 2%.

Consumer spending helped boost economic growth in the final three months of last year, the Commerce Department said Thursday. Spending increased 3.3% in the quarter, the fastest pace in three years.

Overall, the economy expanded at a 3.2% annual rate in the quarter, a solid pace given the drag from the partial federal government shutdown in October.