Consumer Spending, Personal Income Increase in December

In another sign that the economy is recovering, consumer spending increased by 0.2 percent in December and it was accompanied by an increase in personal incomes of 0.4 percent according to the Commerce Department.  This was the third month in a row where consumer spending, which accounts for two thirds of the economy, increased.  Without growth in consumer spending, there cannot be a strong recovery.

Disposable personal income, which is money that individuals have left to spend after paying for non-discretionary items, also increased by 0.4 percent.  Personal savings, which is disposable income less spending, increased to 4.8 percent in December from November's 4.5 percent.

The increase of 0.2 percent in consumer spending was less than the 0.3 percent that economists had projected.  Estimates ranged from no change to an increase of 0.7 percent.  Economists had estimated that personal income would grow by 0.3 percent, so the actual increase was better than expectations.

An economist at Wells Fargo Securities in Charlotte, North Carolina said that the consumer spending numbers show that "households appear to have set a course of moderate spending.  Our outlook for 2010 is an improvement in consumer spending."

Agreeing with the assessment of Wells Fargo Securities was PNC Financial Group in Pittsburgh.  An economist there said "consumers have the wherewithal to support good spending, however they are going to be reticent until they see a few good months of job gains.  2010 is lined up to be a moderately good year."

We'll see how the markets react to this positive news.  Last Friday, they got word that Ben Bernanke was given a second term by the Senate and a much better than expected GDP number, but they still sold off.  During the run up since the lows of March 2009, markets took news that things were getting bad less quickly and bought stocks.  Recently, we've seen them take actual good news and sell off.

Will that trend continue or will today's trading show otherwise?  Stay tuned, and make sure that your gains are protected with either trailing stops or put options.