Consumer spending fizzles in December, savings up

Consumer spending in the US was flat in December as households took advantage of the largest rise in income in nine months to boost their savings, setting the tone for a slowdown in demand early in 2012.

It was the weakest reading on spending since June, the Commerce Department said on Monday. Economists had expected consumer spending, which account for more than two-thirds of US economic activity to nudge up 0.1 per cent, the same as in November.

For all of 2011, spending rose 4.7 per cent, the largest increase since 2007.

"Despite the healthy gains in income, US consumers appear to have rediscovered a new sense of frugality," said Millan Mulraine, an economist at TD Securities.

When adjusted for inflation, spending dipped 0.1 per cent, breaking three straight months of gains. It increased 0.1 percent in November.

The government reported on Friday that consumer spending grew at a 2.0 per cent annual pace in the fourth quarter, helping to lift gross domestic product 2.8 per cent, an acceleration from the third-quarter's 1.8 per cent rate.

Part of the spending, which has been concentrated in motor vehicles, has been funded from savings and credit cards as high unemployment constrains wage growth.

Wages rose last month, helping to prop-up incomes. Income advanced 0.5 percent, the largest gain since a matching increase in March, and followed a 0.1 percent rise in November. Economists had expected income to rise 0.4 percent.