WASHINGTON -Monday's report on consumer spending and personal income should underscore the challenge facing the economy in 2012.
Consumer spending posted a modest gain in December. But while incomes likely rose in the month, the increase for all of 2011 was just one-half of the gain in 2010. Unless incomes grow more rapidly, the economy could be hampered by another year of weak activity and little improvement in employment.
Economists expect spending rose 0.1 percent in December, the same as November, according to a survey by FactSet.
Consumer spending is closely watched because it accounts for 70 percent of economic activity.
Analysts were looking for incomes to rise 0.4 percent in December after rising 0.1 percent in November. The report will be released Monday at 8:30 a.m. Eastern.
The expected increase in incomes would match October, a month when incomes rose by the largest amount in seven months.
But even with the improvement, incomes stagnated for most of 2011, reflecting stubbornly high unemployment. The year ended with disappointing holiday sales, where many retailers had to offer discounts to entice shoppers.
Americans' inflation-adjusted incomes, after paying taxes, rose just 0.9 percent for all of 2011, the government reported Friday. That was just half the modest 1.8 percent increase 2010 and the worst showing since a 2.3 percent drop in incomes in the recession year of 2009.
The government reported Friday that the economy grew at an annual rate of 1.7 percent last year, just about half the 3 percent growth of 2010. It was the weakest showing since the economy was contracting 3.5 percent during the recession in 2009.
Consumer spending for the year rose a modest 2.2 percent, only slightly higher than the 2 percent gain in 2010, an increase that followed two straight years when spending had fallen during the recession.
Economists say the big question going forward is whether incomes will gain enough strength to support stronger spending, thus helping the economy to grow at a faster rate. Many analysts are not hopeful, believing the economy will continue to muddle along in a low-growth rut in 2012.
Nigel Gault, chief U.S. economist at IHS Global Insight, said he expected the overall economy would grow 2 percent this year, only slightly better than 2011 with consumer spending rising 2 percent as well.
"Consumers don't have much income growth and to even achieve a 2 percent growth rate in spending in the fourth quarter, they had to run down their saving rate," Gault said.
The personal savings rate in November fell to 3.5 percent, down from 5.2 percent when the year began.
The savings rate fell to a low of 1.5 percent in 2005, a year when the housing boom and rising home prices made people feel wealthy and more willing to spend.
However, when the housing crash occurred and home prices plummeted, helping bring on a deep recession and rising unemployment, people started saving more. The savings rate rose to annual rates above 5 percent from 2008 through 2010.
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