Consumer Spending Gains in December Driven by Durable Goods Purchases

Consumer spending continued to rise in December, with purchases of goods—especially durable goods—leading the gains. Total inflation-adjusted consumer spending rose 0.4% month-over-month (m/m) on a seasonally adjusted basis and was up 3.1% year-over-year (y/y) compared to December 2023.

Durable Goods Outpace Nondurables in Spending Growth

Real spending on goods increased 0.7% m/m, outpacing the 0.3% m/m increase in real spending on services. On an annual basis, goods spending grew 3.5% y/y, while services spending rose 2.9% y/y.

Among goods, durable goods spending saw the strongest growth, rising 1.1% m/m, more than twice the growth rate of nondurables (0.5% m/m). A key contributor to durable goods growth versus November was computer software and accessories.  Compared to December 2023, the strength was especially in new light truck sales, which pushed durable goods spending up 6.1% y/y. Meanwhile, nondurable goods spending was up 2.2% y/y, mainly due to increased spending on food and beverages.

Quarterly and Annual Trends

For the fourth quarter of 2024 (Q4 2024):

• Real spending on goods rose 1.6% quarter-over-quarter (q/q) and was up 5.4% y/y.
• Real spending on services saw a smaller 0.8% q/q increase, but its y/y growth was stronger at 9.2%.
• Overall, inflation-adjusted consumer spending for 2024 increased 2.8%, with services spending rising 2.9% and goods spending growing 2.4%.

Lower Savings as Consumers Keep Spending

Continued spending growth has come at the expense of personal savings. The personal saving rate in December fell to 3.8% of disposable income, marking the lowest level in two years. However, it’s important to note that revisions in income and expenditures often impact the personal saving rate calculation.

For 2024 as a whole, the personal saving rate averaged 4.7%, the same as in 2023. This follows major fluctuations seen during the pandemic years of 2020-2022.

Inflation and PCE Price Index Trends

The Personal Consumption Expenditures (PCE) price index, a key inflation measure, posted its largest m/m increase since April, rising 2.6% y/y, the highest since May.

• Energy prices contributed significantly to this increase.
• Core PCE (excluding food and energy) rose at a smaller rate than in November, with a 2.8% y/y increase, aligning with October and November levels.

Retail Inventories See First Decline in Over a Year

One of the more notable shifts in December was the decline in retail inventories, particularly in the automotive sector:

• Motor vehicle and parts inventories fell 1.2% m/m, following a 0.9% drop in November—the first back-to-back decline since October 2021.
• Overall retail inventories dropped 0.3% m/m, marking the first decline in over a year and the largest drop since September 2022.
• Excluding automotive, retail inventories still increased 0.2%.

The inventories-to-sales ratio for total retail dropped to 1.3, its lowest since April. The ratio for motor vehicles and parts fell to 1.88, the lowest since March, signaling tighter inventory levels heading into 2024.

Key Takeaways

• Consumer spending growth in December was led by durable goods, with new light trucks and computer software/accessories driving gains.
• Spending growth came at the expense of personal savings, which fell to its lowest level in two years.
• Inflation pressures resurfaced, with the PCE price index up 2.6% y/y, largely due to rising energy costs.
• Retail inventories declined, with automotive inventories seeing the steepest drop since April 2022.

As we move into 2024, the balance between consumer spending, inflation trends, and inventory management will be critical factors to watch in assessing the broader economic outlook.