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Consumer spending rose sharply in December

U.S. consumer spending rose more than expected in December to post the sixth straight month of gains.
/ Source: news services

U.S. consumer spending rose more than expected in December to post the sixth straight month of gains as households drew down on their savings to fund purchases, government data showed on Monday.

The Commerce Department said spending increased 0.7 percent after rising by 0.3 percent in November. Economists polled by Reuters had expected spending, which accounts for about 70 percent of U.S. economic activity, to increase 0.5 percent last month.

Consumer purchases for all of 2010 rose at the fastest pace in three years as consumers boosted spending 3.5 percent. That was the best performance since a 5.2 percent rise in 2007, before the recession began. Economists expect further gains this year that will give the economy a boost.

The December spending figures were included in the government's fourth-quarter gross domestic product (GDP) report released on Friday, which showed the economy grew at a 3.2 percent pace on the back of robust consumer spending.

Spending in the fourth quarter grew at a brisk 4.4 percent pace, the fastest in more than four years. While economists see spending remaining strong this year, they expect the pace of growth to be less brisk than in the last three months of 2010.

Spending in December came as incomes increased 0.4 percent and savings dropped to their lowest level since March. Incomes grew 0.4 percent in November and the increase last month was in line with economists' expectations. Savings fell to $614.1 billion from $634.4 billion in November.

The report also showed the Federal Reserve's preferred measure of consumer inflation — the personal consumption expenditures price index, excluding food and energy — was unchanged in December after edging up 0.1 percent in November.

In the 12 months through December, the core PCE index rose 0.7 percent, the smallest increase since records began in 1959, after increasing 0.8 percent in November.