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Income rises, but not spending

By Tiffany Hsu, Los Angeles Times –

LOS ANGELES — Consumers had more money in their pockets in December, but fewer people decided to spend it, choosing instead to tuck the extra funds away in their savings.

Personal income rose $61.3 billion, or 0.5 percent, from November to December, their highest jump in nearly a year, according to the Commerce Department. The increase was fueled in part by rising wages and salaries.

But personal consumption expenditures dipped $2 billion, or 0.1 percent, an about-face from November.

The savings rate, meanwhile, spiked to $460.1 billion, or 4 percent of disposable personal income — the highest rate in four months. The increase is the largest monthly boost since April 2010.

The trend toward mattress-stuffing is raising concerns about slumping demand for goods and services in the future. Consumer spending makes up roughly two-thirds of the country’s economic activity.

The U.S. gross domestic product fell short of expectations last week when it rose at a 2.8 percent annual rate instead of the 3 percent that many analysts had anticipated. Though the rate was a vast improvement from the 1.8 percent growth in the previous quarter, analysts said the spike resulted mostly from bolstered inventories rather than sales.

Raising concerns about the future stability of the economy, the Federal Reserve last week said it would likely keep interest rates low through 2014.

For the full year, however, Americans spent 4.7 percent more than they did in 2010. And several more promising economic indicators hint at potential spending increases down the line.

Consumer confidence in the economy is at its highest point since May, Gallup found last week. And the national unemployment rate fell to 8.5 percent, its lowest level in nearly three years.

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