Consumer Spending In December 2011 Declined, Yielding No Holiday Boost

The boost that the holiday shopping season was supposed to have given the economy proved to be mostly an illusion.

Consumer spending actually declined 0.1 percent in December when inflation is taken into account, and was flat without inflation being taken into account, according to the Bureau of Economic Analysis. Meanwhile, the personal saving rate jumped to 4.0 percent in December from 3.5 percent the month before, after Americans had been dipping too much into their savings to make up for falling real wages. The new data highlight the extent of the economic strain on most American consumers that will continue to drag on the consumer-based American economy.

Real disposable income actually increased 0.3 percent for Americans, which could have justified higher spending. But consumers chose to save more instead because they had slashed their savings in an "unsustainable" way in the previous 18 months, wrote Paul Dales, senior U.S. Economist at Capital Economics, in a research note.

The holiday shopping season was over-hyped, since most American consumers who went holiday shopping went for the discounts, said Diane Swonk, chief economist at Mesirow Financial, in an interview Friday.

Americans drew on their savings more in the fourth quarter of 2011 than at any point since the end of 2007, since their real wages continued to fall during that quarter. December marks the beginning of a break in that pattern, as both real income and savings rose, though it is unclear whether that change will be sustained.

A closer look at the numbers shows that Americans were justified in their instinct to save more. Though their real disposable income is at its highest level since July, it still is lower than it was at the end of 2010.

Consumer spending did not keep up with the production of goods at the end of 2011 because most newly created jobs pay close to the minimum wage, said Mark Vitner, senior economist at Wells Fargo Securities, in an interview Friday.

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Comments

[guveqzero]

10:29 AM on 02/01/2012

The biggest fix to Americans is to walk away from underwater mortgages. Reversing a negative $100k balance is like money in the bank.

[JKent97]

05:18 AM on 02/13/2012

Yes, and all those defaults will just make everything go away and wipe all the slates clean, right genius? For someone who considers him/herself an "Inventor and Innovator" maybe you should take some basic econ and finance classes.

[Karelh]

10:25 AM on 02/01/2012

It's a myth that we have a consumer based economy. The only thing our personal consumption pays are the base level salaries of people working on a part time basis in retail or fast food. We don't make anything here that the consumer regularly buys (excluding cars, Harley, and some boats). When you fill up your shopping cart at Target or Home Depot, all you did was move product from China. So why going out and spending more at those stores would really help the US economy just doesn't make any real sense.

[kenhamlett]

02:07 AM on 02/01/2012

This an increasingly common phenomenon. The government issues reports (consumer spending, UI claims, GDP, etc.) that are better than anticipated. Then, a week, a month or a quarter later, we learn it was a false story. The weekly UI claims are revised the following week. Over the past year, they have always been revised higher, sometime much higher. In at least our two most recent quarters, the government first report one level of GDP growth, then, the following quarter, acknowledged that growth had been far less robust than reported. It cannot be an accident that every report paints a rosy scenario, then every report is proven wrong. But, reporters today simply grab the press releases and say what they are programmed to say, without noting the trend or questioning the motivation.

[libertymen]

08:29 AM on 02/01/2012

Part of those claims is to avoid panic I think.
Loss of confidence is a crucial factor.
Our problems are severe and cant easily be fixed by either party.
Austerity will damp down the economy further
.Reallocation efficiency,monitoring of programs is the only way to go.
Cut defense budget retrench to only necessary programs.
Increase taxes on upper tiers of income.
Close loopholes.

[SeanN]

09:15 PM on 01/31/2012

It's simple. Consume less (especially plastic Chinese junk), reduce your debt, and save more. Also, very importantly, use the not-for-profit segment of the financial services industry to save and invest (credit union, etc.). Spitting in Wall Street's face is good for your heart.

[libertymen]

09:13 PM on 01/31/2012

The economy in the recent past was a house of cards.
Debt was the fuel for the engine.
Credit card,Home equity loans,lines of credit.dicky mortgages.
People were advised to use their home equity to satisfy any want.
Bad advice for sure.
We should all pull back to build a hedge against an unknown future.
Become more self sufficient.if possible.
Economy has to shrink more.
So watch out.

[libertymen]

09:04 PM on 01/31/2012

We cut back on purpose.
Cant say i missed the over hyped nonsense buying.

[holyghostie]

08:09 PM on 01/31/2012

I liked getting less junk from China the last few years as gifts. I'd rather get nothing than something I'm going to send to a thrift store or a landfill.

[unpaidpundit]

04:12 PM on 01/31/2012

I foresee rough times ahead for any retailer that is mostly or soley dependant on the American market. The American consumer is tapped out, financially. Better go open some stores in China or India, where the middle class is growing!

[ImmanuelGoldstein]

09:48 AM on 01/31/2012

Excess holiday spending is only in the neighborhood of 2% of our GDP. The idea that this provides some kind of bellwether for the rest of the economy is the stupidest type of pop economics.
And anyway, how exactly does whipping out the plastic to buy more junk made in China with money we don't have build up our economy?

[Luman Walter]

08:33 AM on 01/31/2012

The American economy is one big Ponzi scheme.

[Patriot86]

08:31 AM on 01/31/2012

This represents the entire country and does not tell the entire story...in areas where things are getting better...there was shopping ...my area did quite well, but in other areas where things have not improved...it was flat...this shows the idea we have- where we can just ignore states that are in trouble and not help them is a bad idea. "No man is an island...nor is any state.

[AmosKnows]

02:03 AM on 01/31/2012

Economy can't be fixed - they shipped all the real jobs out of the country for profits. We've been sold out. What's left is competition for zero mobility service industry jobs.

[Artos]

10:09 PM on 01/30/2012

All of this is exactly what I was saying during the Christmas holidays. The reason that the Powers that be wanted to make a big deal out of the supposed "Holiday Shopping Craze" was to incite more buying and to create an illusion of progress. More smoke and mirrors. Knowing this is it any wonder very few of us still trust them.

[Sister Bluebird]

09:09 AM on 01/31/2012

You are absolutely correct!

[vonbek]

07:03 PM on 01/30/2012

Christmas shopping is finished by the Monday after Thanksgiving you silly goose.

[Computer Geek]

06:56 PM on 01/30/2012

I don't think business really 'gets it'. The emperor has no clothes and now the naked truth is out there for everyone to see. Corporations (specifically CEOs) don't give their employees raises, could care less about anything other than their pigeons ... er, I mean customers ..., they outsource half the jobs to cheap slave labor in countries where they can get away with slavery and they don't think people have a clue. But their profits keep going up, so why should they care. It's only when they have killed off half the population of the world and they have less of a selection as their valet or housekeeper that they will decide that perhaps they have been less than generous. Remember Scrooge? These people are worse because they believe just the opposite of what everyone now sees very clearly - they think they are doing the world good.