WASHINGTON (AP) -- Americans' incomes rose last month by the most in nine months, a hopeful sign for the economy after a year of weak wage gains. But consumer spending was flat.
Incomes rose 0.5 percent, the Commerce Department said Monday. It was the strongest increase since a similar gain in March.
Consumer spending was unchanged. That followed weak gains of 0.1 percent in both October and November.
The report underscored the challenge facing the economy in 2012. Unless incomes grow more rapidly, consumers will be forced to cut back further on spending. That would slow growth and result in less hiring.
After-tax incomes adjusted for inflation rose 0.3 percent in December. For the year, inflation-adjusted incomes rose 0.9 percent, just half the modest 1.8 percent rise in 2010.
The government reported Friday that the economy grew at an annual rate of 1.7 percent last year -- roughly half the growth of 2010. It was the weakest showing since the economy contracted 3.5 percent in 2009.
Consumer spending for the year rose a modest 2.2 percent, only slightly higher than the 2 percent gain in 2010. But Americans dipped into their savings last year to finance some of the growth in spending last year.
Consumer spending is closely watched because it accounts for 70 percent of economic activity.
Unemployment stands at 8.5 percent -- its lowest level in nearly three years after a sixth straight month of solid hiring.
For the final three months of 2011, Americans spent more on vehicles, and companies restocked their supplies at a robust pace.
Still, overall growth last quarter -- and for all of last year -- was slowed by the sharpest cuts in annual government spending in four decades. And many people are reluctant to spend more or buy homes, and many employers remain hesitant to hire, even though job growth has strengthened.
The outlook for 2012 is slightly better. The Federal Reserve has estimated economic growth of roughly 2.5 percent for the year, despite abundant risk factors: federal spending cuts, weak pay increases, cautious consumers and the risk of a European recession.
Economists say the big question going forward is whether incomes will gain enough strength to support stronger spending, thus helping the economy to grow at a faster rate. Many analysts believe the economy will continue to muddle along with low growth in 2012.
Nigel Gault, chief U.S. economist at IHS Global Insight, said he expected the overall economy would grow 2 percent this year, only slightly better than 2011 with consumer spending rising 2 percent as well.