U.S. Households Boost Spending, Initial Jobless Claims Spike

U.S. households boost spending

Households increased their spending in December with personal consumer expenditures (PCE) increasing 0.2% after a 1.0% gain in November. Market expectations had been for a rise of 0.1%. Personal income was up 0.5% slightly higher than market expectations, while the core PCE deflator was up 0.2% in the month and 2.2% on a year-over-year basis.

Increasing non-durables and services spending contributed to the rise in nominal spending in December. Spending on durables was down 0.5%. Real spending was flat after posting a 0.4% gain in November. Real expenditures on durables and non-durables declined, while there was a slight uptick in real services spending. For the fourth quarter, real spending was up an annualized 2.0%, slightly slower than the first quarter's 2.8% pace.

Core PCE prices rose a trend-like 0.2% in the month, resulting in year-over-year growth of 2.2%, matching November's rate. The savings rate rose to 0.2% from 0.0% in November.

Fourth-quarter spending was able to hold up in the face of softer labour markets, elevated energy prices and declining housing markets. However, the moderation in real expenditures in December indicates that spending momentum weakened heading into the first quarter of 2008 and sets up for consumer spending to slow appreciably, which, in turn, will contribute to a subdued first-quarter pace of economic growth.

U.S. initial jobless claims spike

Initial jobless claims for the week ending January 26th jumped to 375,000 from 306,000 in the week prior. It should be noted that readings in the first three weeks of January were sharply below the December average, which could reflect holiday-related volatility. Hence, the surge in claims this week may have represented “pay-back” from the very low levels observed earlier in the month.

The less volatile four-week moving average increased to 325,750 from 315,500 but was still at a relatively low level. Looking ahead to the January payroll data to be released tomorrow, the larger-than-expected ADP employment gain is suggesting greater strength in payrolls compared to December. That said, however, the jump in claims could suggest deteriorating labour market conditions and we will be watching them next week to see if this high level is sustained.

RBC Financial Group
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The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.