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The numbers: Consumer spending sank 0.6% in December as omicron infected millions of Americans and households pared back, reflecting a weakening of the economy at the end of last year.
It was the first decline in spending in 10 months. Economists polled by The Wall Street Journal had forecast a 0.7% decline.
If adjusted for inflation, consumer spending shrank an even sharper 1%.
Incomes rose 0.3% in the December, but not enough to offset the increase in inflation.
Big gains in income in 2021 helped households cope with the biggest surge in inflation in decades. Prices rose by 5.8% last year based on the Federal Reserve’s preferred PCE gauge and an even higher 7% using the better known consumer price index.
Incomes jumped a somewhat larger 7.3% in 2021 owing to rising wages and massive government stimulus for individuals and families. But the stimulus is mostly gone and Americans can’t depend on further government largesse.
Big picture: The economy was tripped up by a record wave of coronavirus cases, but the omicron outbreak appears to be rapidly receding.
Economists predict consumer spending — and the U.S. economy — will speed up again soon if cases continue to fall and Americans are able to resume somewhat normal lives again.
The biggest obstacle is the highest inflation in decades. It’s eroded otherwise strong wage gains and made everything more expensive.
Market reaction: The Dow Jones Industrial Average
DJIA,
and S&P 500
SPX,
were set to open sharply lower in Friday trades.
Stocks have gotten off to a rocky start this year due to the expectation that the Fed will raise low U.S. interest rates for the first time in four years.
