Consumer spending slows


Published: Thursday, January 31, 2008 at 9:17 a.m.
Last Modified: Thursday, January 31, 2008 at 9:17 a.m.

WASHINGTON Consumers, battered by harsh economic crosswinds, spent less in December than at any time in the past 15 months.

The Commerce Department reported Thursday that spending edged up just 0.2 percent in December the year's peak shopping season down sharply from a 1 percent gain in November. It was the weakest performance in this area since spending fell by 0.1 percent in September 2006.

Consumer spending is closely watched because it accounts for two-thirds of total economic activity. The overall economy skidded to a near standstill in the October-December quarter, advancing at an anemic 0.6 percent annual rate, the government reported Wednesday. The concern is that the economy weakened so much in the final month of last year that the gross domestic product could turn negative in the current quarter, signifying the start of a full-blown recession.

In another sign of economic weakness, the number of newly laid off workers filing applications for unemployment benefits shot up last week by 69,000 to 375,000. That was the highest level for jobless claims since the week of Oct. 8, 2005, when the economy was dealing with the disruptions caused by Hurricane Katrina.

The weakening jobs market is keeping labor cost pressures contained. The Labor Department's Employment Cost Index posted a 0.8 percent rise in the final three months of last year. Wages and salaries were up 0.8 percent and benefit costs, which include health insurance and pensions, rose by 0.9 percent.

The 0.2 percent rise in consumer spending looked even worse when price changes were removed. Inflation-adjusted spending did not increase at all last month, following a 0.4 percent rise in November and a 0.1 percent decline in October.

The report on spending confirmed earlier reports by retailers that last year was the worst year for holiday spending in five years as consumers, worried about the economy and hit by tighter credit, a wave of home foreclosures and soaring energy prices, sharply reined in their shopping despite the best efforts of retailers to boost sales with discounted merchandise.

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