Oil prices curtail consumer spending, income edges higher

February 2, 2015

WASHINGTON (2/3/15)--The withering price of oil knocked down consumer spending in December, while personal income growth climbed for the month, according to numbers released Monday by the Bureau of Economic Analysis.

After a 0.7% increase in November, real spending dropped by 0.1% in the final month of 2014, with weakness shown in spending on both durable and nondurable goods.

The drop in spending was the largest monthly drop in five years, "although plunging energy spending accounted for much of the decline," according to Scott Hoyt, Moody's analyst ( Feb. 2).

Personal income growth, on the other hand, rose 0.3% in December after posting a 0.3% increase in November. Wage income growth played a smaller role in the overall gain, however, climbing only 0.1% for the month, which is the weakest performance since May.

"Wage growth is stronger than it was last year and is trending modestly higher despite December's weak growth," Hoyt said. "Health care spending growth seems to be accelerating and is likely to grow rapidly over the next several months, as more people have health insurance coverage as a result of the Affordable Care Act."

Consumer prices in December fell 0.2%, matching the biggest decline since 2008, according to Moody's. Energy goods and services prices dropped by 5.2%, while food prices increased by 0.2%.

Prices rose 0.7% year-over-year in December, the lowest annual advancement since 2009, and climbed 1.3% higher excluding food and energy prices.

Nominal spending dropped by 0.3%, and by 0.1% when excluding gasoline and utilities spending. Real disposable income rose 0.5% for the month as well.