Spending slows in December
Published: Friday, February 1, 2008 at 6:01 a.m.
Last Modified: Thursday, January 31, 2008 at 8:38 p.m.
WASHINGTON - Buffeted by soaring fuel prices and tighter credit, consumers increased their spending at the weakest pace in six months. In other signs of trouble, applications for unemployment benefits last week soared by the largest number since Hurricane Katrina.
The Commerce Department reported Thursday that consumer spending edged up just 0.2 percent in December - the year's peak shopping season. That was down sharply from a 1 percent gain in November. It was the weakest performance in this area since a similar 0.2 percent rise in June of last year.
Meanwhile, the Labor Department reported that the number of laid off workers filing applications for unemployment benefits increased by 69,000 to 375,000 last week. 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 and other Gulf Coast hurricanes.
The increase in jobless claims was more than triple what economists had been expecting, although part of the increase was blamed on technical difficulties in adjusting the figures around the Martin Luther King Jr. holiday. Analysts said the greater concern was the slowdown in consumer spending, which they predicted would continue in the current quarter, the period many believe will be the maximum danger point for a recession.
The overall economy, as measured by the gross domestic product, slowed to an anemic growth rate of 0.6 percent in the final three months of 2007, half of what had been expected, and many analysts believe it could dip into negative territory in the current quarter. By one definition, a recession occurs when GDP is negative for two consecutive quarters.
David Wyss, chief economist at Standard & Poor's, said he was forecasting that GDP would decline at an annual rate of 1 percent in the current quarter, in large part because of the expected further slowing in consumer spending, which accounts for two-thirds of economic activity.
"Happy holidays is not a phrase that retailers are using to describe this year's shopping season," said Joel Naroff, chief economist at Naroff Economic Advisors.
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