Consumer spending rose in the final quarter of 2013, beating out estimates by most economists.
The Department of Commerce reported this week that consumer spending increased by 0.4% in December, after a 0.6% increase in November.
According to Reuters, economists surveyed by the news agency had predicted that the economy would grow by 0.2% in December.
The amount of spending by consumers is watched closely by economists, as well as financial industry leaders and policy makers. Consumer spending makes up about two-thirds of the country’s gross national product. Because it’s such an important indicator of overall consumer health, it’s important for business students to keep track of, particularly those going into the retail industry.
The numbers from the Commerce Department showed that December had the greatest consumer spending increase in three years. The nation’s economic growth rate was 3.2% during the fourth quarter, due in large part to increased consumer spending, according to Reuters.
There were signs of potential challenges ahead. Income levels were basically the same in December, after rising just 0.2% in November. According to Reuters, the stagnant wage growth shows that the economy is “working through slack in the labor market.”
For the entire 2013 year, the gain in income was 2.8%, which is the weakest gain since 2009, when the country was still in a recession, according to Salon.
While consumer spending was up in December, the University of Michigan index of consumer sentiment dropped in January to 81.2, compared to 82.5 in in December, according to a report released Friday.
“I think we are heading for some choppy spending over the next several months,” Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Penn., told Reuters. “Spending will be tested by several factors.
“The volatility in equity markets and the turmoil in the emerging markets could affect investor sentiment. We also have the loss of unemployment benefits and food stamps for a lot of Americans.”
