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U.S. Household Spending Fell in December

People are saving but not spending.
(Nattakorn_Maneerat)
(Nattakorn_Maneerat)
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“U.S. consumer spending fell 0.2% in December, though a 0.6% rise in household incomes could prime the economy for growth this year,” WSJ writes.

Why It Matters: Consumers have been the beneficiaries of a favorable financial climate — government stimulus has provided relief, the stock market is surging and home values are rising. However, restrictions and an unwillingness to dine out or do other things like go to concerts or on vacations have significantly slowed how much money is flowing back into the economy.

  • Weak household spending was a significant factor in why economic recovery slowed down inQ4, resulting in an annualized growth rate of 4%. In total, the economy shrank 3.5% in 2020 compared to the year prior.

Households collectively have saved around $1.4 trillion in the first nine months of last year, roughly twice as much in the same period a year earlier, according to Berenberg Economics.

  • This comes off the heels of the $1,200 and $600 stimulus payments many received.

Looks aren’t everything after all. Many households are still being crunched financially. The unemployment rate of 6.7% in December is almost double that of February’s 3.5%.

  • Many small businesses have been forced to close as well.

The Outlook: “Household income is expected to grow further in early 2021, as the federal government mails one-time cash payments of $600 to most families and provides $400 a week in special benefits to unemployed workers on top of their normal jobless compensation.”

  • Meanwhile, tens of millions of Americans are benefitting from paused federal student loans.

What’s Next: Growth will probably slow down this quarter. IHS Markit projects output will expand 2.8% in Q1. But with vaccinations coming and business restrictions easing, there’s an expectation things will pick up. California and Washington D.D. have already eased certain restrictions in recent days.

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