US consumer spending rises in December as savings fall

US consumer spending rose solidly in December but shoppers' festive splurge was at the expense of the saving rate which fell to a fresh 12-year low.

Spending on goods and services increased 0.4% last month, the Commerce Department said. The figure was in line with economists' expectations in a Reuters poll. Incomes also rose 0.4% – faster than November's 0.3% rate and ahead of expectations.

Despite the pickup in income growth households used savings to fund their spending. Total savings fell to $351.6bn from $365.1bn a month earlier. The saving rate dropped to 2.4% from 2.5% in November. December's figure was the lowest since September 2005.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said: "The acceleration in spending in Q4 was financed partly by a falling saving rate… It cannot keep falling; spending will likely rise less quickly in Q1, but the trend is strong."

Spending in the world's biggest economy has held up as consumers have dipped into savings but has also been supported by steadying wages and confidence created by the strong stock market. For all of 2017 personal income rose 3.1% – a stronger increase than the 2.4% recorded in 2016.

A low saving rate can be a sign of economic trouble ahead as households tap into their reserves to support spending. But the economy could get a fresh boost from President Donald Trump's tax cuts.

Trump's critics argue the package benefits the well-off over ordinary workers but the cuts could buoy spending in the short term. Analysts at Berenberg said consumers may not have to continue using savings for spending after income growth picked up and that Trump's measures would also have an effect.

"With changes in tax withholding schedules as a result of tax reform (implemented by firms in coming weeks) and many firms announcing special bonuses, consumers will have more to spend on large household durables and discretionary services," Berenberg said.