Economy

Consumer spending up in December, and for 2010

by Vicki Needham - 01/31/11 5:17 PM ET

Consumer spending accounts for about 70 percent of the economy and has lagged behind because of high levels of unemployment and an increase in saving levels and paying off debt.

Lawmakers and the White House pushed through an $858 billion comprehensive tax package that provides a two-year extension of the 2001 and 2003 tax cuts and federal unemployment benefits through 2011, giving consumers some extra money in their paychecks.

Although the economy is expanding and consumers are expected to spend more this year, the scarcity of jobs and a persistently high unemployment rate are likely to linger through 2011.

Meanwhile, incomes increased for a third month, as households saw their incomes rise 0.4 percent, the same as November.

Wages and salaries increased 0.3 percent after an 0.1 percent gain in November.

Households have been paying off their debt and saving money, although the savings rate decreased slightly last month, to 5.3 percent, the lowest level since March, from 5.5 percent the prior month.

The economy grew at a 3.2 percent annual pace in the fourth quarter, the Commerce Department reported on Jan. 28. Consumer spending climbed at a 4.4 percent rate, the most since the first three months of 2006.

Spending jumped 5.5 percent during the holidays, the best performance in five years, according to a report by MasterCard Advisors’ SpendingPulse.

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