U.S. income up 0.5%; consumer spending flat

Americans’ income rose in December by the most in nine months, a hopeful sign for the economy after a year of weak wage gains, but that didn’t lead to any more consumer spending than was seen in November. Apparently, Americans ended up saving all their additional income. Economists note average income rose last month largely because of strong hiring. The economy added 200,000 jobs in December. More jobs mean more income available to spend. The best hope for the economy is further job gains. On Friday, the government is expected to report another solid month of hiring for January. Nationwide, household income rose 0.5% from November to December, the Commerce Department reports this morning. That’s the sharpest increase since a similar gain in March. The flat spending in December followed scant gains of 0.1% in both October and November. For all of 2011, income barely rose. And consumers tapped their savings to spend more. But in December, Americans boosted their savings. If they continue to save any additional income rather than spend it, the economy could slow. And that could force employers to pull back on hiring. Consumer spending accounts for about 70% of economic activity. Many economists are holding out hope, though, that continued job gains will mean more spending across the economy. The Associated Press has the full story here.