Consumer spending, incomes fall; savings rise

WASHINGTON – Consumer spending fell for a record sixth straight month in December as recession-battered households, worried about surging layoffs, boosted their savings rates to the highest level since May.

Economists expect consumer spending, which accounts for the largest portion of total economic activity, to remain weak this year, prolonging an already painful recession.

The Department of Commerce reported Monday that personal consumption spending dropped by 1 percent in December. That was slightly worse than the 0.9 percent decline economists expected. The government also revised its November estimate to show spending fell 0.8 percent rather than 0.6 percent in that month.

Incomes, reflecting a wave of layoffs, fell for a third straight month, but the 0.2 percent drop was slightly better than expected. The decline in November, however, was revised to show incomes dropped 0.4 percent, double the initial estimate.

Still, Americans, worried about the possibility of more job cuts, boosted their savings rate to 3.6 percent of their after-tax incomes in December. That was the highest level since tax rebate checks temporarily pushed the rate up to 4.8 percent in May.

For the year, consumer spending rose by just 3.6 percent, the smallest annual increase since 1961. Incomes rose by 3.7 percent, the weakest gain since a 3.2 percent advance in 2003.

For December, the 1 percent drop in consumer spending represented the sixth straight decline, a stretch not seen since the government began keeping monthly records on incomes and spending a half of a century ago.

The 1 percent drop in consumer spending in December came when the nation’s retailers reported their worst holiday sales season in at least four decades and automakers struggled with falling demand.