WASHINGTON, Jan 31 (Reuters - U.S. consumer spending rose steadily in December, but tepid income gains pointed to moderate consumption growth this year, which could confine the economy to a slow growth lane.
The Commerce Department said on Friday consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.3% last month as households spent more on health care after an unrevised 0.4% rise in November.
Last month's increase in consumer spending was in line with economists' expectations.
The data was included in the gross domestic product report for the fourth quarter, which was published on Thursday. The government reported that growth in consumer spending slowed to a 1.8% annualized rate last quarter after expanding at a brisk 3.2% pace in the July-September period.
The economy grew at a 2.1% rate in the final three months of 2019, matching the third quarter's pace.
Cooling consumer spending in the face of a deepening slump in business investment likely sets the economy on a lower growth trajectory in 2020. Still, a recession is unlikely in the near term as the economy draws support from the Federal Reserve's three interest rate cuts last year.
The U.S. central bank on Wednesday left rates unchanged, with Fed Chairman Jerome Powell telling reporters that he expected "moderate economic growth to continue" but also acknowledged some risks, including the recent coronavirus outbreak in China.
Though monthly inflation picked up last month, price pressures remained muted. Consumer prices as measured by the personal consumption expenditures (PCE) price index rose 0.3% last month, the biggest gain since April. The PCE price index was driven by a 1.5% surge in the cost of energy goods and services prices. Food prices were unchanged.
The PCE price index edged up 0.1% in November. In the 12 months through December, the PCE price index increased 1.6% after climbing 1.4% in the 12 months through November.
Excluding the volatile food and energy components, the PCE price index increased 0.2% last month after edging up 0.1% for the previous four months. That lifted the annual increase in the so-called core PCE price index to 1.6% in December from 1.5% in November.
The core PCE index is the Fed's preferred inflation measure. It missed the U.S. central bank's 2% target every month in 2019.
When adjusted for inflation, consumer spending nudged up 0.1% in December after rising 0.3% in the prior month. That likely sets a lower base for consumer spending in the first quarter.
Personal income gained 0.2% last month after an increase of 0.4% in November. There was a $36.2 billion decrease in farm proprietors' income, reflecting a drop in subsidy payments to farmers caught in the 18-month U.S.-China trade war.
Wages increased 0.3% in December after rising 0.4% in the prior month. With income growth lagging consumer spending, savings fell to $1.28 trillion last month from $1.30 trillion in November. (Reporting by Lucia Mutikani Editing by Paul Simao)