The Commerce Department has reported that consumer spending increased 0.4 percent after rising by a revised 0.6 percent in November. Consumer spending recorded its strongest gain in three years in the fourth quarter, helping lift the economy to a 3.2 percent annual growth rate.
However, income was unchanged last month after rising 0.2 percent in November. This is a possible reflection of the end of jobless benefits for approximately 1.3 million long-term unemployed last month. Weak income growth combined with strong spending means less savings for Americans. The saving rate – the percentage of disposable income households are saving – fell to an 11-month low of 3.9 percent in December.
Both inflation measures remain stuck below the Federal Reserve’s 2 percent target. That suggests that the Federal Reserve, which is gradually reducing the amount of money it is supplying the economy, will hold interest rates near zero for a while.
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