Personal Spending for December Firmer than Expected

• Personal income was up 0.5% M/M in December
• Personal spending beat expectations, rising by 0.2% M/M, despite a confluence of headwinds against the consumer

The December personal income and spending data for December was a generally a little better than expected. Personal income was up 0.5% M/M, following a 0.4% gain in November. And personal spending actually rose 0.2% M/M. This comes as a surprise in light of the disappointment in the fourth quarter GDP figures released yesterday, which showed a slower than expected pace of consumption. But despite the surprise in the monthly spending number, it was still the slowest monthly pace since June 2007.

In real terms, personal consumption expenditures were flat on a monthly basis in December. In addition, consumption of both durable and non-durable goods in December were soft, falling 0.3%M/M and 0.2%M/M in real terms, respectively.

The other interesting feature of this report is the fact that real disposable income was up 0.2% on the month, which is the first increase in real disposable income in three months. This suggests that the consumer had a bit more wherewithal than initially expected in December. However, the fact that it was the slowest pace in six months and the fact that a better tone in spending did not appear in the December retail figures suggests this one month blip could be an anomaly. There are serious headwinds against consumers right now, including tight credit conditions, rising energy prices, and slowing economic activity. All of these are expected to take a toll on consumption going forward.

In terms of price pressures, there was yet another indication that there are lingering price pressures which continue to percolate. The core PCE deflator rose 0.2% on the month, and on a year ago basis, the core PCE index remained at 2.2%, the same as November. On balance, while these price pressures appear tame, the contribute to a host of other upside price pressures which put the Fed in a very tight spot with regard to its decision making.

TD Bank Financial Group

The information contained in this report has been prepared for the information of our customers by TD Bank Financial Group. The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does TD Bank Financial Group assume any responsibility or liability.