January 31, 2008 / 1:35 PM / in 12 years

Personal spending up a weak 0.2 pct

WASHINGTON (Reuters) - Personal spending in December inched up 0.2 percent, slightly more than expected but for the entire year spending grew by the weakest amount since 2003, a government report on Thursday showed.

When adjusted for inflation, spending was unchanged, the Commerce Department report showed, as consumers were socked with surging energy and food costs.

This data was incorporated into a report on Wednesday that showed the economy nearly stalled in the fourth quarter, advancing by just 0.6 percent to close out the weakest year of growth in five years.

Economists polled ahead of the Commerce Department report were expecting personal spending to advance by just 0.1 percent as consumers were in the headwinds of a weakening economy hit hard by plummeting home values and tighter lending.

“Inflation was quite high in December, and that is part of the problem, you see that the current dollar disappears — it is not too bad on a month on month basis — but consumers are squeezed by food and energy prices and worries of recession, credit costs are going up and housing prices are going down,” said Kurt Karl, chief economist at Swiss Re in New York.

Prices for U.S. Treasury bonds rose, but that was in reaction to a separate labor department report showing the bigger-than-expected surge in new applications for jobless benefits that brought the level to its highest in more than two years.

For all of 2007, consumer spending grew by 5.5 percent, the weakest growth since a 4.8 percent increase in 2003. Personal income in December rose 0.5 percent. That was slightly higher than the 0.4 percent increase economists were expecting.

Meanwhile, the personal consumption expenditure price index, a key measure of inflation rose 0.2 percent. But this year-one-year index excluding food and energy prices, a favorite inflation gauge of the Federal Reserve, rose 2.2 percent, a sign that inflation is persisting even while the economy slows.

Reporting by Joanne Morrison; Additional reporting by Alister Bull, Editing by Andrea Ricci

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