Quantcast
Connect with us

US consumer spending soft, inflation benign as economy slows

Published

on

U.S. consumer spending barely rose in January and income increased modestly in February, suggesting the economy was fast losing momentum after growth slowed in the fourth quarter.

The report from the Commerce Department on Friday also showed price pressures muted in January, with a measure of overall inflation posting its smallest annual increase in nearly 2-1/2 years. The Federal Reserve last week brought its three-year campaign to tighten monetary policy to an abrupt end.

ADVERTISEMENT

The U.S. central bank abandoned projections for any interest rate hikes this year after increasing borrowing costs four times in 2018, in a nod to the slowing economy, low inflation and rising headwinds to growth. The economy is losing steam as the stimulus from $1.5 trillion in tax cuts as well as increased government spending dissipates.

“Unless some positive shock hits the economy, by the fall, we are likely to be back to where we were before the tax cut bill was passed,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. 

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, edged up 0.1 percent as households cut back on purchases of motor vehicles. Spending fell 0.6 percent in December.

Economists polled by Reuters had forecast consumer spending increasing 0.3 percent in January. The release of the January consumer spending figures was delayed by a five-week partial shutdown of the federal government that ended on Jan. 25.

When adjusted for inflation, consumer spending gained 0.1 percent in January after dropping 0.6 percent in December.

ADVERTISEMENT

The dollar slipped against a basket of currencies. U.S. Treasury prices fell, while stocks on Wall Street rose.

WEAK DATA STREAM
The weak consumer spending report extended the run of soft data ranging from housing starts to manufacturing that have flagged a sharp slowdown in growth early in the first quarter. The economy’s outlook is also being overshadowed by slowing global growth, Washington’s trade war with China and uncertainty over Britain’s departure from the European Union.

Gross domestic product forecasts for the first quarter are as low as a 0.9 percent annualized rate. The economy grew at a 2.2 percent pace in the fourth quarter after expanding at a brisk 3.4 percent rate in the July-September period.

ADVERTISEMENT

But the Fed’s decision to shelve further monetary policy tightening could prop up the interest-rate-sensitive housing market. A second report on Friday from the Commerce Department showed new home sales rose 4.9 percent to a seasonally adjusted annual rate of 667,000 units in February, the highest level since March 2018.

The housing market, however, accounts for a small fraction of the economy. A recovery in the sector, which hit a soft patch last year, will probably not be enough to blunt the impact on growth from slowing consumer spending and manufacturing.

ADVERTISEMENT

A third report from the University of Michigan showed a rise in consumer sentiment in March. Economists, however, did not expect this to translate into stronger consumer spending as other confidence measures softened during the month.

“Spending will downshift to the slowest pace in a year in the first quarter,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.

In January, spending on goods fell 0.2 percent after dropping 2.4 percent in December. It was the second straight monthly decline in spending on goods and reflected a decrease in motor vehicle purchases.

ADVERTISEMENT

Outlays on services rose 0.2 percent as consumers paid more for financial services and insurance, after increasing 0.3 percent in December.

With demand softening, inflation pressures were tame in January. The personal consumption expenditures (PCE) price index fell 0.1 percent, reversing December’s 0.1 percent gain.

In the 12 month through January, the PCE price index rose 1.4 percent, the smallest rise since September 2016 after increasing 1.8 percent in December.

Excluding the volatile food and energy components, the PCE price index ticked up 0.1 percent in January after rising 0.2 percent in the prior month. That lowered the year-on-year increase in the so-called core PCE price index to 1.8 percent from 2.0 percent in December.

ADVERTISEMENT

The core PCE index is the Fed’s preferred inflation measure. It hit the U.S. central bank’s 2 percent inflation target in March last year for the first time since April 2012.

In February, personal income increased 0.2 percent after dipping 0.1 percent in January. Incomes have been volatile in recent months because of one-off factors, including government payments to farmers caught in the U.S.-China trade war.

Wages rose 0.3 percent in February, matching January’s gain. Savings decreased to $1.19 trillion last month from $1.22 trillion in January.

Reporting by Lucia Mutikani; Editing by Andrea Ricci and James Dalgleish

ADVERTISEMENT


Report typos and corrections to: [email protected].
READ COMMENTS - JOIN THE DISCUSSION
Continue Reading

Facebook

Trump’s desire to put the Bidens on trial in the Senate is nothing but a ‘fever dream’: MSNBC reporter

Published

on

MSNBC political contributor Jake Sherman explained that President Donald Trump wants to hold a Senate trial against former Vice President Joe Biden and his son Hunter, but that even in the hyper-partisan era, it's nothing more than a "fever dream."

Reports reveal that Trump wants to turn the impeachment trial in the Republican Senate into a reality television show where he can make the case against the Bidens to justify his bribery of Ukraine. Senate Majority Leader Mitch McConnell (R-KY) shut the president down.

Continue Reading

Breaking Banner

Congressional subpoenas will be ‘forever unenforceable’ if GOP lets Trump off the hook: conservative attorney

Published

on

Conservative attorney Gabriel Malor, who in the past has written legal analyses for right-wing publications such as The Federalist and the Washington Examiner, warns that Republicans will be setting a dangerous precedent if they let President Donald Trump off the hook for his unprecedented obstruction of the House of Representatives' impeachment inquiry.

Writing on Twitter, Malor argues that giving Trump a pass on the House's proposed obstruction of Congress charge will neuter any future congressional inquiry into the executive branch.

"There's a real danger that if the Senate does not convict on the obstruction of Congress count, congressional subpoenas will be forever unenforceable," he writes. "If Congress itself rules that defiance of congressional subpoenas is no error, how could the courts in any future litigation?"

Continue Reading
 

Facebook

Lawmakers green light US space force

Published

on

The United States is getting a new space force along with $738 billion in military spending under an agreement backed by lawmakers on Tuesday that fulfils a priority of President Donald Trump.

The fiscal year 2020 spending in the National Defense Authorization Act is a jump from the $716 billion authorized last year, and will go to pay for a wide range of military activities.

It will also create a space-based sixth branch of the military, a priority of Trump's, after the army, air force, navy, Marine Corps and coast guard.

The bill has won the approval of Democratic and Republican lawmakers in both the House and Senate armed services committees, making its passage in Congress likely.

The bill, which Congress must pass each year, allocates $635 billion to the Pentagon, and another $23.1 billion to the Department of Energy for the US nuclear arsenal's maintenance and fuel.

Continue Reading