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At a glance
A measure of U.S. consumer sentiment slipped last month as stock markets fell, though confidence remained at a healthy level.
The University of Michigan said its index of consumer sentiment dropped 1.3 points to 81.2. It marked a solid gain from a year ago, when the index was at 73.8.
Still, consumers’ assessment of their financial health reached its highest level in six months. And the number of consumers who said their incomes had recently increased has reached a six-year high, an encouraging sign for future growth.
– Associated Press

December spending up, but income flat

– Americans increased spending in December at a solid pace for the second straight month even though income was flat.

Consumer spending rose 0.4 percent in December, compared with November, when spending had increased an even stronger 0.6 percent, the Commerce Department reported Friday. That was the best gain in five months.

Income, however, showed no gain at all in December after a 0.2 percent rise in November. Wages and salaries were basically flat in December, reflecting a sharp slowing in employment growth.

For all of 2013, income growth was 2.8 percent, the weakest performance since 2009 when income fell 2.8 percent as the country struggled with a deep recession.

Economists are hoping that stronger economic growth will promote stronger employment and income gains this year.

Chris G. Christopher, director of consumer economics at Global Insight, said that he was looking for stronger growth in consumer spending this year, reflecting improvements in the housing market, job prospects and consumer confidence.

The combination of stronger spending in December but no improvement in income meant that consumers tapped savings to finance their spending. The saving rate slipped to 3.9 percent of after-tax income in December, down from 4.3 percent in November. It was the lowest monthly saving rate since it dropped to 3.6 percent last January.

For the year, the saving rate slipped 4.5 percent, the lowest level since the rate was 3 percent in 2007. The saving rate had fallen before the Great Recession as surging home prices made Americans feel wealthier and more willing to spend more and save less.

Consumer spending is closely watched because it accounts for 70 percent of economic activity.

For the October-December quarter, consumer spending was rising at the fastest pace in three years, giving economists hope that the economy has finally turned the corner.