Consumer spending surged in the fourth quarter of 2016 thanks to American households purchasing automobiles and a myriad of other goods in December.
The Department of Commerce said Monday consumer spending, which accounts for in excess of two-thirds of all U.S. economic activity, increased by 0.5 percent in December, after remaining stagnant at 0.2 percent in November. The increase in spending could foreshadow an uptick in domestic demand for good and services and spur in economic growth.
The Congressional Budget Office (CBO) projects that the economy will continue to expand over the next two years, virtually eliminating underused resources in the economy. CBO projects that U.S. GDP will grow by 2.3 percent this year, and 1.9 percent next year. Consumer spending is expected to be the biggest catalyst for economic growth, as it has been typically in previous years.
Increasing demand for goods and services is expected to drive up the demand for labor. A falling labor force participation rate raised concerns about future economic health, but the CBO expects the downward trend to change within the next two years. As more workers are drawn into the labor force to meet the increasing demand on firms to produce goods and services, the stronger economy is expected to mitigate the downward trend in the labor force participation rate.
Wages and salaries also increased by 0.4 percent in December, sparking a 0.3 percent increase in personal income, the Bureau of Economic Analysis reports.
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