updated 2/2/2004 11:19:43 AM ET 2004-02-02T16:19:43

Consumers kept the nation’s cash registers busy in December, boosting their spending by a healthy 0.4 percent in a fresh sign that the economy’s recovery has legs.

Major Market Indices

The over-the-month increase reported by the Commerce Department Monday followed a brisk 0.5 percent rise in consumer spending for November — even better than the government previously estimated.

In other good news for the economy, construction spending in December posted its best month on record, the department said.

The total value of building projects under way came in at a seasonally adjusted annualized rate of $933.2 billion, representing a 0.4 percent rise from November’s level. The strength shown in December was led by residential projects by private builders, where spending also hit a monthly all-time high.

The latest snapshot of consumers’ spending appetite, meanwhile, also showed that 2003 ended on a good note. Consumers spent at a solid clip in both November and December — an improvement from the prior two months when their spending was flat.

Americans’ incomes rose by a modest 0.2 percent in December, following a 0.3 percent rise the month before.

The spending and income figures are not adjusted for price changes.

Consumers, whose spending accounts for roughly two-thirds of all economic activity in the United States, have been buying at a sufficient pace to keep the economic recovery rolling along.

The economy grew at a healthy 4 percent annual rate in the October-to-December quarter, although it was a slowdown from the sizzling 8.2 percent rate registered in the previous quarter. That marked the strongest performance in nearly two decades.

Consumers took a break from a buying binge and spent modestly for much of the fourth quarter. Their spending went up at a 2.6 percent rate, down from a 6.9 percent growth rate in the third quarter, the fastest clip since 1986.

Analysts were predicting a slowdown in economic growth — and consumer spending — in the fourth quarter as the stimulative impact of tax cuts and a refinance frenzy faded with the onset of winter.

Economists are optimistic that consumer spending — helped by tax refunds — is picking up in the current quarter and will help the economy expand at a rate of more than 4 percent.

Short-term borrowing costs controlled by the Federal Reserve are likely to stay near rock-bottom levels during the first three months of this year, analysts predict. That might give consumers and businesses an incentive to spend and invest more, lifting economic growth.

Low interest rates in 2003 powered residential construction and home sales, making these industries an important source of strength for the economy.

Americans’ income growth in December was on target with analysts’ projections, while the spending increase was slightly weaker than the 0.5 percent rise that some economists were forecasting.

In December, consumers increased spending on “durable” goods, such as cars and appliances, by a strong 1.8 percent, up from a 1 percent advance in November.

Spending on services rose by 0.4 percent for the second month in a row. Spending on “nondurables” such as food and clothes, held steady in December, after a brisk 0.7 percent increase the month before.

With spending outpacing income growth, the nation’s personal savings rate — savings as a percentage of after-tax income — dipped to 1.3 percent in December from 1.5 percent in November. December’s rate was the lowest in a year, matching the rate seen at that time.

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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