Surprise boost in Dec. consumer spending

WASHINGTON - U.S. consumer spending rose more than expected in December to post the sixth-straight monthly gain as households drew down their savings to fund purchases, the government reported Monday.

The Commerce Department said spending increased 0.7 percent after rising by 0.3 percent in November.

Consumer purchases for all of 2010 rose at the fastest pace in three years as consumers boosted spending 3.5 percent. That was the best performance since a 5.2 percent rise in 2007, before the recession began. Economists expect further gains this year that will give the economy a boost.

Economists polled by Reuters had expected spending, which accounts for about 70 percent of U.S. economic activity, to increase 0.5 percent last month.

The December spending figures were included in the government's fourth-quarter gross domestic product report released Friday, which showed the economy grew at a 3.2 percent pace on the back of robust consumer spending.

Fourth-quarter spending grew at a brisk 4.4 percent pace, the fastest in more than four years. Economists expect the pace of growth to be less brisk than in the last three months of 2010.

Spending in December came as incomes increased 0.4 percent and savings dropped to their lowest level since March. Incomes grew 0.4 percent in November and the increase last month was in line with economists' expectations. Savings fell to $614.1 billion from $634.4 billion in November.

Monday's spending report also showed the Federal Reserve's preferred inflation gauge rose at the slowest pace on record, one reason policy makers are pushing ahead with a second round of monetary stimulus worth $600 billion.

The December uptick "bodes well" for the new year, because it comes before Americans start to see more savings in their wallets this year with the extension of the Bush tax cuts and the drop in Social Security payroll tax, said Irwin Kellner, chief economist for MarketWatch.

"I've had a feeling all along that people were more prone to spending because they have pent-up demands, they've rebuilt their savings accounts and paid down some debt," Kellner said. "I wouldn't be surprised if January were an even stronger month, held back only by the miserable weather."

With Ellen Yan