Fourth-Quarter Economic Growth Was an Ode to the Consumer

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Dirty Money


Consumers in the United States pulled off a neat trick in the fourth-quarter: they managed to spend more money without earning more money — or, at least, they spent money faster than they earned it. According to the U.S. Bureau of Economic Analysis, real disposable personal income — what people have left to spend after taxes and inflation (chained 2009 dollars) — declined by 0.2 percent in December, while personal consumption expenditures increased 0.2 percent on the same basis. Using current dollars, real disposable personal income was flat, and personal consumption expenditures increased 0.4 percent.

For the quarter, the BEA reports that real personal disposable income increased 0.8 percent, a dramatic deceleration from a 3 percent increase in the third-quarter. Personal outlays, meanwhile, increased by 4.0 percent for the quarter.

There are both pros and cons to this trick. At the the individual level, the net effect of this is higher debt and slimmer savings accounts — both negatives as far as the individual is concerned. Total personal savings in the U.S. — disposable income minus outlays — fell 11.8 percent to $545.1 billion. The personal savings rate (as a percentage of disposable personal income) fell 0.6 percentage points to 4.3 percent. The Federal Reserve hasn’t published consumer credit data for December yet, but revolving consumer credit outstanding increased at an annual rate of 6.3 percent in September, 7.0 percent in October, and 4.8 percent in November, an average growth rate of about 6 percent.

These burdens, though, have been a boon for overall economic growth. Consumer spending accounts for as much as 70 percent of total expenditures in the U.S., and a 3.3 percent increase in real personal consumption expenditures in the fourth-quarter was the driving force behind overall gross domestic product growth for the period.

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