consumer spending

Consumer Spending Flat, Income Rises To 9 Month High

Consumer spending slowed down in December and the Commerce Department said it was the weakest since June. Economists were expecting a 0.1% increase in December. Consumer spending jumped 4.7% for all of 2011, the biggest increase since 2007. Consumer spending its one of the closest watched data points because it makes up more about 70% of the U.S. economy. When adjusted for inflation, consumer spending actually dipped 0.1% last month. This snaps a three-month streak of gains.

Wages fared better than consumer spending last month. Income saw a nice jump last month rising 0.5%, the largest gain since March. Analysts were expecting an income increase of 0.4%. Many people took advantage of the income jump to build up their savings.

One area of the economy that has been doing well lately is motor vehicles. The last three months of 2011 saw a big increase in vehicle purchases and car companies have been scrambling to restock their inventories.

Growth was hampered last quarter and the whole year as cuts in annual government spending and poor home sales held the economy down. Unemployment continues to be a problem as well despite the unemployment rate falling.

2012 looks to be slightly better. The Federal Reserve is estimating a 2.5% growth for the year. Economists see income as the biggest question mark moving forward. Income will need to rise more in order to support stronger spending which will in turn grow the economy faster. Many analysts believe the economy will continue to grow at a slow rate in 2012.

Jobless Claims and Durable Goods Orders Jump

New claims for unemployment rose last week to 377,000, up from last week’s nearly four-year low. Jobless applications have been on a downward trend over the past few months with the four week average at 377,500. Any number below 375,000 is seen as a signal that hiring is good enough to lower the unemployment rate.

The economy has added at least 100,000 jobs for six straight months now and the unemployment rate has dropped to 8.5%. Economists are expecting job gains of 160,000 a month in 2012. Many economic indicators including the jobs market showed improvement in late 2011. Factory output jumped in December and consumer confidence and spending rose. Consumer spending usually increases though as Black Friday and holiday shopping sends consumers to the stores.

Growth could slow down though as many economist believe that Europe falling into a recession is a forgone conclusion because of its debt crisis.

In other news, durable goods orders jumped 3% in December. “There is more horsepower to this economy than most believe,” said Sung Won Sohn, an economics professor at California State University, Channel Islands. “The stars are aligned right for a meaningful economic recovery.”

Stocks have given up most of their gains this morning as the Dow is positive, but the Nasdaq and S&P have turned negative.

Jobless Claims Drop Again, GDP Revised Lower

New claims for unemployment hit a 3 year low last week, suggesting that the economy is beginning to gain momentum despite third quarter growth being revised down. Initial claims for unemployment benefits dropped 4,000 to a seasonally adjusted 364,000 last week. Last week’s drop in unemployment benefits claims is the third straight weekly drop and is the lowest since April 2008.

“The employment situation continues to show strong signs of a recovery and goes against the grain of what people felt four months ago,” said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. in New York.

The jobs data helped shift the focus away from a separate report from the Commerce Department showing GDP grew by 1.8% in the third quarter. GDP was previously reported to have grown by 2%, but saw healthcare spending drop sharply in the third quarter.

Despite being revised lower, the GDP for the third quarter was up from the 1.3% growth seen in the second quarter.

Consumer spending was revised to 1.7% from 2.3% because of adjustments to healthcare services, especially those in nonprofit hospitals. Durable goods saw an upward revision to 5.7% from 5.5%. Business inventories dropped less than expected with a $2 billion drop versus an estimated $8.5 billion. If you take out inventories, the economy grew by an adjusted 3.2%, down from 3.6%.

Overall the market is reacting positively to the jobs data and opened up slightly higher this morning. As of 9:50 am EST, the Dow is up 40 points, the Nasdaq is up 17 points and the S&P is up 6 points. Expect volume to be light today as the holiday weekend approaches.

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