U.S. Personal Income & Spending (December 2024)

U.S. Consumer Spending Growth Ended 2024 on a High Note, Outpacing Income Growth

• Personal income continued to grow robustly in December, rising by 0.4% month-over-month. Real disposable income, which excludes the impact of taxes and inflation, also edged higher, rising by 0.1% m/m.
• Income gains continued to support consumer spending. Coming on the heeds of solid gains in the prior two months, nominal spending increased 0.7% in December. Stripping out inflation, the volume of spending also rose, increasing by 0.4% on the month and 3.1% from the year ago.
• December marked another strong month of spending on goods (+0.7% m/m), led by durables (+1.1% m/m). The gain in services spending was more modest (+0.3%).
• Inflationary pressures were little changed in December. The Fed's preferred inflation metric, the core PCE price deflator, rose 0.2% m/m, up slightly from the 0.1% increase seen in November. In year-over-year terms, core PCE inflation remained unchanged at 2.8%.
• With spending outpacing income growth, the personal savings rate edged lower in December, declining to 3.8% down from 4.1% in November.

Key Implications

• It appears that U.S. consumers were off to the races at the end of last year. Yesterday's GDP report had already telegraphed that consumer spending ended 2024 with bang, rising by 4.2% (annualized) in the fourth quarter. However, today's release provided additional color, showing that spending outpaced income growth yet again in December. In fact, this was the case in 9 out of 12 months of last year, coming at the expense consumers' ability to set money aside for the rainy day. As a result, personal saving rate declined from 5.5% at the start of 2024 to 3.8% last month. 
• Last year's strong consumer spending is even more impressive given that it happened alongside high interest rates and a cooler labor market. Some of the recent strength in spending on durable goods could be due to post-hurricanes replacement demand, and consumers racing to buy electric vehicles ahead of incentives being cancelled. We are still expecting real consumer spending to moderate closer to 2% this year, although the recent performance makes us wonder if U.S. consumers will once again surprise to the upside, helped by large stockpile of wealth they've accumulated since the pandemic.