Americans increased their spending 0.4 percent in December, a solid pace but slower than the big spending burst seen in November.
The Commerce Department said Monday the spending gain followed a 0.8 percent surge in November. Incomes were up 0.4 percent, helped by a healthy rise in wages that reflects the fact that unemployment is at a 17-year low of 4.1 percent.
A key inflation gauge tracked by the Federal Reserve was up a tiny 0.1 percent in December. It has risen 1.7 percent over the past 12 months, still below the Fed’s 2 percent inflation goal.
Consumer spending is closely watched because it accounts for 70 percent of economic activity. Strong spending helped support overall economic growth of 2.6 percent in the fourth quarter.
The 0.4 percent rise in spending last month reflected a strong 0.7 percent increase in spending on durable goods such as autos. That helped offset a 0.2 percent drop in nondurable goods spending, a drop that reflected in part a fall in gasoline prices. Spending on services rose 0.5 percent, an increase that reflected in part a jump in spending on utility bills because of unseasonably cold weather in many parts of the country.
The economy grew at a 2.3 percent rate for all of 2017, a significant rebound from 1.5 percent in 2016 but still well below the goal set by the Trump administration to boost growth to 3 percent or better. President Donald Trump will deliver his first State of the Union address on Tuesday night. He is expected to tout the benefits of his $1.5 trillion tax cut and other aspects of his economic program, including deregulation and increased infrastructure spending.
The spending report Monday showed that the saving rate slipped to 2.4 percent of after-tax income in December, the lowest point in more than a decade, since a 2.3 percent rate in September 2005.
The Federal Reserve meets this week, and officials are expected to leave interest rates unchanged. Economists are forecasting three rate hikes this year following three hikes in 2016. They expect that low inflation will finally approach the Fed’s 2 percent goal this year, which would prompt further rate hikes.