Personal Income Up 0.5 Pecrent in December, Spending Flat

(Dow Jones) - Personal incomes picked up during December but Americans chose to increase savings instead of spending, according to official data Monday, showing a caution that will likely keep the economy in a slow-growth mode in 2012.

Personal income grew 0.5 percent compared to the prior month, after rising 0.1 percent in November, the Commerce Department said. Spending was flat after moving up just 0.1 percent the month before.

Economists surveyed by Dow Jones Newswires expected spending to grow by 0.1 percent and income to jump 0.4 percent last month.

Even as the holiday shopping season drew to a close, Americans boosted their savings in December at the fastest pace since August. The personal saving rate was four percent last month, compared to 3.5 percent in November.

For the year, incomes and spending moved in tandem as each rose 4.7 percent, the data showed.

The government said Friday that the economy grew 2.8 percent at the end of 2011, the fastest pace of the year. But much of the increase was caused by an inventory buildup that followed worries about the economy over the summer and it's not expected to be repeated in the first quarter of this year.

The Federal Reserve expects modest economic growth in 2012, ranging from 2.2 percent to 2.7 percent, according to projections released last week.

Unemployment is high, state and local government spending has dropped six straight quarters, and housing prices keep falling, making consumers feel less wealthy. The government's latest unemployment reading is due out Friday. Economists expect the rate to edge up to 8.6 percent.

Monday's report showed that the price index for personal consumption expenditures (PCE), a measure of inflation, grew just 0.1 percent in December from the prior month, but was up 2.4 percent on a year-over-year basis.

The annual number is slightly higher than the Fed's price-stability goal of two percent, but down significantly from the 2.9 percent yearly growth registered in September.

As the global economy shows signs of slowing, the Fed is forecasting annual inflation, as measured by the PCE index, in the range of 1.4 percent to 1.8 percent this year.

The underlying PCE index, which strips out volatile food and energy prices, grew 0.2 percent last month and was up 1.8 percent on an annualized basis, Monday's report showed.

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