Income rises but America still refuses to spend
Published 31/01/2012 | 05:00
Americans' income rose in December by the most in nine months, a hopeful sign for the US economy after a year of weak wage gains. But consumers didn't spend any more than they had in November.
Americans ended up saving all their additional income.
Economists noted that income rose last month largely because of strong hiring. The economy added 200,000 jobs in December. More jobs mean more income available to spend.
The best hope for the economy is further job gains. On Friday, the government is expected to report another solid month of hiring for January.
Income rose 0.5pc from November to December, the Commerce Department said yesterday. It was the sharpest increase since a similar gain in March.
The flat spending in December followed scant gains of 0.1pc in both October and November. For all of 2011, income barely rose. And consumers tapped their savings to spend more.
But in December, Americans boosted their savings. If they continue to save any additional income rather than spend it, the economy could slow. And that could force employers to pull back on hiring.
Consumer spending accounts for about 70pc of economic activity.
Many economists are holding out hope, though, that continued job gains will mean more spending across the economy.
"The pace of job growth in recent months, while still not satisfactory compared to most past cycles, at least seems sufficient to generate enough income growth to keep consumer spending moving ahead at a modest pace," said Joshua Shapiro, chief US economist at MFR. After-tax income adjusted for inflation rose 0.3pc in December.
For the year, inflation-adjusted income rose 0.9pc. That was just half the rise in 2010.
Inflation-adjusted consumer spending rose just 2.2pc last year. It was slightly better than the increase in 2010. Consumer spending was flat in December, even though retail sales rose slightly and retailers reported modest holiday sales.
Unemployment fell to 8.5pc last month -- the lowest level in nearly three years -- after a sixth straight month of solid hiring.