GDP: Consumer Spending Growth Less Than Expected

Thursday morning, the Commerce Department released its latest revisions to 4th Quarter GDP estimates. Two months ago, preliminary data showed the economy contracting by 0.1% in the October-December period. Today's data showed the economy was essentially flat, expanding by just 0.4%. In a worrisome revision, however, personal consumer spending growth was revised down to 1.8%, from an earlier estimate of 2.2% growth. Consumer spending drives 70% of economic activity. 

The top-line GDP growth number is itself worrying. Growth in the 3rd Quarter was a robust 3.1%. For all of 2012, growth was 2.2%, up slightly from 2011, but down from 2010. Even the revised 4th Quarter number shows an economy that was rapidly decelerating at the end of 2012. Economists currently estimate that the 1st Quarter in 2013 will show 2.5% growth, but the downward revision in consumer spending makes that questionable. 

At the beginning of March, the Bureau of Economic Analysis found that personal income declined 3.6% in January. The increase in consumer spending was fueled, in large part, by a sharp decline in the personal savings rate. In December, consumers saved just over 6% of their income, in January, however, savings were just over 2% of income. 

Consumer spending was weaker in the 4th Quarter than originally estimated. It isn't likely to rebound in the 1st Quarter, which officially ends tomorrow. The weak 4th Quarter growth is likely a new trend line.

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