US consumer spending slows to 0.3% gain in December

WASHINGTON (AP) — U.S. consumer spending slowed in December as Americans spent more on prescription drugs and health care services but those gains did not offset a sharp slowdown in spending on new cars.

The Commerce Department said Friday that consumer spending rose a moderate 0.3% after a stronger 0.4% gain in November. Income growth also slowed in December, rising by 0.2%, just half the 0.4% increase in November.

Inflation as measured by a price gauge preferred by the Federal Reserve was up 0.3% in December compared to a 0.1% November increase.

However, for the full year, prices rose just 1.6%, well below the Fed’s 2% target. The modest inflation readings gave the Fed the leeway last year to cut its benchmark interest rate three times to protect the economy from a global slowdown and manufacturing disruptions caused by the U.S.-China trade war.

Consumer spending is closely watched because it accounts for 70% of economic activity. The economy, as measured by the gross domestic product, grew at a 2.1% annual rate in the fourth quarter, matching the GDP performance in the third quarter. Consumer spending increase at a 1.8% rate after six months of much bigger gains.

Despite the fourth quarter slowdown, economists believe consumer spending will remain a fundamental driver of the U.S. economy, boosted by a strong labor market which has pushed unemployment to a 50-year low and boosted incomes.