December Consumption: Cruising Into Q1

January 30, 2006 – Real consumption growth fell by 3 percentage points to a 1.1% annual rate in Q4 – its weakest quarterly rise since the start of the 2001 recession (Chart 1). This decline in consumption growth reduced Q4 real GDP growth by 2.1 percentage points, compared to Q3.

Chart 1. Percent change in real consumption. Q1 2000 through Q4 2005.

As noted in earlier reports, the Q4 consumer slowdown was narrowly based in the auto sector. Further, in the monthly data, a rebound is already underway (Chart 2).

Chart 2. Percent change in real consumption. Monthly and 3-month moving average. January 2000 through December 2005.

Real consumption rose by a brisk 0.9% in December, matching its November gain. Measured at an annual rate, that’s two straight increases of about 11.5%.

Reflecting this recent extra-strong growth, December’s real consumption level exceeded its Q4 average by nearly $73B chained 2000 dollars (Chart 3).

Chart 3. Real consumption. Chained 2000 dollars. July through December 2005.

This relatively high starting level will lend an upward bias to consumption growth in Q1. For example, given zero monthly growth from January through March, Q1 consumption growth would reach a 3.7% annual rate.

Suzanne Rizzo