Consumer spending in the U.S. sprang back less in January amidst muted price pressures, and income rose in moderately in February, implying that the economy was losing momentum quickly after its growth slowed down in the last quarter of 2018.
The Commerce Department reported on Friday that consumer spending increased 0.1 percent as households reduced purchases of motor vehicles. Data last December showed that spending falls 0.6 percent compared to the initially reported 0.5 percent. Consumer spending accounts for over two-thirds of the whole US economic activity.
Last week, the Federal Reserve ended its campaign for tightening monetary policy with inflation and growth is still at a slower pace.
Meanwhile, the U.S. central bank renounced forecasts of any hike on interest rates this 2019 after extending borrowing cost for about four times last year, as a response to the decelerating economy, moderate inflation and increasing chances for growth. The economy is fiddling away as the boost from $1.5 trillion in tax decreased, and higher government spending squanders.
Joel Naroff, the chief economist of Naroff Economic Advisors located in Holland, Pennsylvania, noted that only if there would be some helpful ‘shock’ that will strike the U.S. economy until fall, the situation will most likely go back on how it was before the bill on tax cuts was passed.
Economists projected consumer spending to be rising at 0.3 percent last January. Reports on the consumer spending data last January was held back by the federal government’s five-week shutdown that only ceased last January 25.
If regulated with inflation, data shows that consumer spending only clinched a 0.1 percent increase in January after its significant 0.6 percent drop last December. The dollar also fell short against an array of currencies. Prices on U.S. Treasury dropped, while Wall Street’s stocks increased.
The report about low consumer spending lengthened the course of soft data which ranges from housing up to manufacturing – that also suffered a huge plugged in its growth in the opening quarter. The slowing worldwide growth, the trade war between China and Washington and Britain’s exit from the EU continue to mask the economy’s perspective.
In the opening quarter of 2019, gross domestic product is expected to be as little as 0.9 percent in an annualized rate. While the economy increased at a 3.4 percent rate in the third quarter, it only rose at a mere 2.2 percent in the October to December period.
However, the Federal Department’s action to lay aside greater tightening in monetary may lift the housing market – the sector most affected by changes on interest rates. Commerce Department also reported on Friday that new homes sales increase to 4.9 percent in February which is the greatest extent it has reached since March 2018.
While this seems to be good news, the housing sector only shares a tiny part of the economy. Any positive development in the market may not cause a significant impact on growth.
Another data released by the University of Michigan cited an increase regarding consumer sentiment this March. However, most economists don’t project this to result in higher consumer spending since further confidence measures blunted throughout the month. Sal Guatieri, a senior economist at Toronto-based BMO Capital Markets, said spending would go through its slowest progress this year in the first quarter.
Last January, spending on commodities dropped 0.2 percent after plunging 2.4 percent last December. This result is the second consecutive monthly drop in commodities spending among consumers. Outlay on services, on the other hand, increased 0.2 percent, 0.1 percent behind from what it gained the previous month. This rise can be attributed to consumers choosing to pay for insurance expenses financial services more.
With the demand toning down, inflation pressures became modest in January. PCE or the personal consumption expenditures, excluding volatile energy and food elements, only increased 0.1 percent last January after going up 0.2 last December. That decreased the annual rise in the core PCE price index to just 1.8 percent from the 2.0 percent it recorded last December.
The core PCE index is the preferred measure for inflation of the Federal Department. For the first time since 2012, it achieved the U.S. central bank’s 2.00 percent ceiling in March last year.
Last February, PCI ticked up 0.2 percent after dropping 0.1 percent in January. Incomes became strained in the previous month due to certain factors such as the government paying farmers caught amid the United States’ ongoing trade war with China.
Wages increased to 0.3 in February; the same percentage gained in January. Though, savings plunged to $1.19 trillion in the previous month compared to the $1.22 trillion it accumulated in January.