WASHINGTON (Reuters) – US consumer spending fell to a ten-month high in February as cold weather hit many parts of the country and a second round of controls faded. of stimulus to middle- and low-income households.
But the drop in consumer spending, the most significant since the mandatory shutdown of non-essential businesses such as restaurants last April to curb the spread of COVID-19, is considered temporary. The economy is about to record its best performance in 37 years, thanks to the massive $ 1.9 trillion pandemic relief package from the White House and the increase in coronavirus vaccinations.
“The February decline in income and spending is just a temporary drop,” said Gregory Daco, chief U.S. economist at Oxford Economics in New York. “We expect the combination of rising vaccination rates and a new round of stimulus checks on the larger COVID-19 stimulus package to provide a sharp increase in consumer spending in March.”
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, fell 1.0% last month amid a broad fall in purchases of goods, the Commerce Department said Friday . This followed a 3.4% rise in January.
Personal income fell 7.1% after growing 10.1% in January. Economists surveyed by Reuters had predicted that consumer spending would fall by 0.7% in February and revenue would fall by 7.3%.
Unusually harsh weather in the second half of February, including Texas and other densely populated parts of the southern region, depressed housing construction, factory production, orders and shipments of manufactured goods.
Temperatures are rising and the approved relief package this month sends an additional $ 1,400 to qualified homes and expands the government safety net for the unemployed until Sept. 6. The recovery of the labor market is also gaining strength, with first-time applications for unemployment benefits. a minimum of one year last week.
The brighter economic and health prospects boosted consumer spirits, which bodes well for spending. In a separate report Friday, the University of Michigan said its consumer sentiment index rose this month the most in nearly eight years.
Wall Street shares were trading higher. The dollar rose against a basket of other currencies. US Treasury prices were lower.
WIDE DECLINE
Last month, spending on goods fell 3.0%, driven by declining purchases of pharmaceuticals and recreation. Expenditure on services increased 0.1%, as consumers spent more on utilities and health care in hospitals, offsetting a decrease in spending on restaurants.
With soft demand, inflation retreated. But prices are expected to accelerate due to the wider reopening of the economy and the fall in last year’s weak calculations, as well as a very accommodative fiscal and monetary policy.
Federal Reserve Chairman Jerome Powell told lawmakers this week that the projected rise in inflation over the year will be “neither particularly large nor persistent.”
The personal consumption expenditure (PCE) price index, excluding the volatile food and energy component, rose 0.1% after rising 0.2% in January. In the twelve months to February, the so-called basic PCE price index rose 1.4% after rising 1.5% in January. The core PCE price index is the Fed’s preferred measure of inflation for its 2% target, a flexible average.
“While inflation will move a little further, it will remain well contained over the next few years,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania. “There’s still a lot of influx into the economy.”
When it adjusts to inflation, consumer spending fell 1.2% last month after jumping 3.0% in January. Despite the fall in so-called real consumer spending, consumption in the first two months of the first quarter is well above the average for the fourth quarter.
A 2.5% increase in the trade deficit in goods to $ 86.7 billion in February, the second-highest on record, reported on Friday in another report on Friday, did nothing to dampen enthusiasm for economic growth. ‘this quarter.
The report also showed that wholesale inventories gained 0.5% last month and that retailers ’shares remained unchanged.
With the latest data in hand, Morgan Stanley economists raised their first-quarter gross domestic product estimate to an annualized rate of 10.0% from a rate of 8.7%. The economy grew at a rate of 4.3% in the fourth quarter. This year’s growth could exceed 7%, which would be the fastest since 1984. The economy contracted by 3.5% in 2020, the worst performance in 74 years.
Last month’s revenue was depressed by a 27.4% drop in government transfers. Salaries were also flat. The savings rate fell to a still high 13.6% from 19.8% in January, and economists expected part of the cash from the latest stimulus checks to be saved. Households have an excess savings of about $ 1.9 trillion.
“We anticipate that the hoarding will exceed $ 2 trillion once the final round of direct controls hits household incomes in March and April,” said Tim Quinlan, senior economist at Wells Fargo Securities in Charlotte. North Carolina. “This will provide households with ample means to boost spending, not only for the economy to reopen this year, but also next year.”
Report by Lucia Mutikani Edited by Chizu Nomiyama and Paul Simao