01/30/2012 09:46 am ET

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.