Consumer spending fell flat in December, typically the nation's heaviest shopping season, indicating further signs of a weakening economy as 2007 drew to a close. Real personal consumption expenditures (PCE), adjusted for inflation, remained virtually unchanged in the final month of 2007 after posting a 0.4% gain in November, according to Commerce Department figures released yesterday.
The report, issued by the Department's Bureau of Economic Analysis, sets off a further alarm that the nation may be teetering on the brink of recession, as indicated by yet another rate cut by the Fed earlier this week, as well as the economic stimulus package now making its way through Congress, which proposes to ignite consumer spending by putting extra cash in citizens' wallets come spring.
Consumer spending is an important fiscal barometer because it accounts for two-thirds of total economic activity in the U.S.
Purchases of durable goods fell by 0.3 percent in December, according to the latest Commerce Department numbers, while spending on nondurable goods fell 0.2 percent after an increase of .4 percent in the third quarter. Spending on services rose a meager .1 percent, compared to a .5 percent increase in the third quarter of 2007.
The latest PCE figures expand on a GDP report released by the Commerce Department earlier this week, which confirmed a quarter over quarter deceleration in consumer spending in the second half of 2007. Whereas the third quarter saw a 2.01 percentage point gain in consumer purchases, spending inched up only 1.37 points in the fourth quarter.
Declines in home purchases account for a considerable chunk of the slow down in consumer spending, according to government officials. Residential investments (money spent on construction, remodeling, and real estate broker fees) dropped by 24 percent in the fourth quarter of 2007, representing the steepest dive in that category in a quarter century, and compounding a similarly dismal third quarter drop of 21 percent. The Commerce Department estimates the housing slump has curtailed fourth quarter GDP growth by 1.18 percentage points.