Consumers spend to lift US economy

Americans spent their money at the fastest pace in three years in 2010, boosted by a strong finish in December.

Consumer spending rose 0.7 per cent in December, the sixth straight monthly increase, the US commerce department reported yesterday. Households saw their incomes rise 0.4 per cent, the same as November.

For 2010 as a whole, consumers increased their spending by 3.5 per cent. That was the best performance since a 5.2 per cent rise in 2007, before the recession.

On Friday, the US government said that consumer spending rose at a 4.4 per cent rate in the final three months of 2010 - the most since 2006 and helping retailers to the best holiday shopping season in that time.

Economists expect a cut in social security taxes will lift January's spending and incomes even further that last month.

But Paul Dales, senior US economist at Capital Economics, said the boost could be short-lived without job growth.

For 2010, incomes rose 3 per cent after having fallen 1.7 per cent in 2009. Still, incomes grew at the second-lowest annual pace in the eight years.

The rise in incomes and the faster increase in spending meant that the savings rate dipped slightly in December to 5.3 per cent of after-tax incomes. The savings rate edged down slightly to 5.8 per cent, from 5.9 per cent in 2009, still well above the low of 1.4 per cent hit in 2005 at the height of the housing boom.