Consumer Spending, Income Rose in December

The rise in incomes and the faster increase in spending meant that the savings rate dipped slightly in December to 5.3% of after-tax incomes.

The savings rate edged down slightly to 5.8%, from 5.9% in 2009. Still the 2010 figure is well above the low of 1.4% hit in 2005 at the height of the housing boom when rising home prices encouraged Americans to spend more.

The December spending gain was powered by a 1.5% rise in purchases of nondurable goods, such as clothing and food. Consumers boosted their spending 0.7% on long-lasting products such as autos and appliances. Spending on services rose 0.4%.

The increased economic activity is not leading to higher inflation. A price gauge tied to consumer spending showed prices outside of food and energy increased 0.7% in the 12 months ending in December, a record low.

Economists expect a slowly improving job market and a payroll tax cut will boost spending further in 2011.

The big question is whether the gains in consumer spending will be enough to offset weakness in the housing market and further cutbacks in government spending.

For all of 2010, the economy grew 2.9%, the best performance since 2005. That's a sharp contrast to the 2.6% drop in GDP in 2009, the worst decline in more than 60 years.