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Last Updated: Monday, 30 January 2006, 16:25 GMT
US consumer spending picking up
US shoppers picking goods from sale baskets
Without shoppers the US economy is in danger of grinding to a halt
US consumers, the main driver of the world's largest economy, picked up their rate of spending in December, a Commerce Department report has shown.

That bodes well for the economy in the first three months of this year, after growth had slowed significantly in the previous quarter, analysts said.

Helping boost spending was a rise in personal income and disposable income levels and a renewed appetite for cars.

Consumers also dipped into savings to help pay for the increased spending.

Spending during December rose by 0.9%, the Commerce Department said.

No impediment

Mark Zandi, an economist at Moody's Economy.com, said that the report "reflects the firmer job market and a rebound in vehicle sales in December".

He went on to explain that the low level of savings - minus 0.5% for 2005 as a whole - would only became a problem when interest rates continued to climb.

The US Federal Reserve is due to meet later on Monday and on Tuesday, and the consensus is that interest rates are likely to rise by a quarter of a percentage point to 4.5%.

Following the most recent move, the Fed is widely expected to hold off increasing borrowing costs.

As a result, "consumer spending growth will moderate, but it won't impede the current pace of economic expansion", Mr Zandi said.

Getting better?

Recent figures have shown that the rate of growth in the world's key economy has slowed.

The economy grew at an annual rate of 1.1% from October to December, the slowest rate in three years. It expanded by 4.1% in the previous three months.

Consumers account for about two-thirds of the total US economy and any serious slowdown in their spending could mean problems for future growth.

However, many of the main causes of the slowdown have diminished as the price of crude oil has dropped back from record levels and the destructive effect of hurricanes Katrina and Rita have either been countered or absorbed.

Many economists are now predicting a rebound in growth in the current quarter.


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