WASHINGTON (Reuters) – US consumer spending peaked in seven months in January as the government allocated more money to alleviate the pandemic in low-income households and new COVID infections -19 fell, positioning the economy for faster growth in the first quarter.
Despite the sharp rise in consumer spending released on Friday by the Department of Commerce, price pressures were silenced. Inflation is being watched amid concerns by some sectors that the $ 1.9 trillion COVID-19 recovery package proposed by President Joe Biden could cause the economy to overheat.
The plan, considered by the U.S. Congress, would be at the forefront of a nearly $ 900 billion bailout package approved by the government in late December. Federal Reserve Chairman Jerome Powell has downplayed fears of inflation, citing three decades of lower, more stable prices.
“Thanks to Washington, the economic outlook for the near future is sunny,” said Sung Won Sohn, a professor of finance and economics at Loyola Marymount University in Los Angeles.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, jumped 2.4% last month. This was the biggest gain since last June and ended with two monthly declines. Personal income rose 10%, the largest increase since last April, when the government disbursed the first round of stimulus checks. Revenue rose 0.6% in December.
Graphic: personal consumption –
The recent stimulus package included $ 600 checks to mostly low-income Americans and some middle-income ones. The package also expanded a government-funded weekly unemployment benefit, as well as benefits for millions of people who do not qualify for state unemployment programs, as well as for those who have exhausted their six months of eligibility. . These benefits expire in mid-March.
The consumer spending report added to this month’s optimistic data on manufacturing output, building permits and home sales.
Consumers bought motor vehicles, recreational items, food and beverages. They also increased spending on services such as hotel and restaurant accommodations, as well as doctor visits.
Economists surveyed by Reuters had forecast consumer spending to recover 2.5% in January and revenue to accelerate 9.5%.
US stocks traded lower. The dollar rose against a basket of currencies. US Treasury yields fell.
When adjusted for inflation, consumer spending rose 2% last month after declining 0.8% in December. But strong consumer spending attracts imports.
On Friday, in a separate report, the Commerce Department said the commodity trade deficit rose 0.7% to $ 83.7 billion last month, with imports outpacing an increase in exports. The department also reported a 0.6% decrease in retail inventories, although wholesalers ’shares rose 1.3%.
The drag on economic growth stemming from the widening commodity trade deficit and the slower pace of inventory accumulation are likely to be exacerbated by strong consumer spending.
Following this month’s solid reporting series, Morgan Stanley raised its first-quarter gross domestic product growth estimate to an annualized rate of 8.1% from a rate of 7.3%. Growth forecasts for the quarter rose last week from a rate of 2.3%. The economy grew at a rate of 4.1% in the fourth quarter.
There are indications that the massive White House stimulus package could be fully approved next month. It would send an additional $ 1,400 to skilled households and extend the government safety net for the unemployed.
Consumer spending is likely to rise, although winter storms, which wreaked havoc in Texas and other densely populated parts of the south this month, could slow the momentum. Daily coronavirus cases and hospitalizations have dropped to the levels last seen before the Christmas and Thanksgiving holidays, as the pace of vaccination increases.
Although a third University of Michigan report showed that its consumer sentiment index fell this month from January, a Conference Board survey this week showed improved confidence among households.
Graph: Consumer sentiment –
Inflation was benign last month. The personal consumption expenditure (PCE) price index, excluding the volatile food and energy component, rose 0.3% after a similar increase in December. In the twelve months to January, the so-called PCE base price index rose 1.5% after advancing 1.4% in December.
The core PCE price index is the Fed’s preferred measure of inflation for its 2% target, a flexible average.
Chart: Inflation –
Powell told lawmakers this week that the U.S. central bank will keep interest rates low and continue to pump money into the economy by buying bonds “at least at the current rate until we move substantially toward our goals (maximum employment and inflation) “.
The labor market has a large influx, with at least 19 million people on unemployment benefits.
Last month’s revenue was driven by a 52% increase in government transfers. It was also supported by a 0.7% rise in wages. Excluding powerful public income available to households after inflation fell by 0.5%.
Part of the stimulus money sent to households was set aside, raising the savings rate to 20.5% from 13.4% in December.
“We expect an additional stimulus package approved in March to further increase the savings rate, which adds to a strong wind of purchasing power that has been building up among American households, ready to unfold as the economy reopens, ”said Ellen Zentner, chief economist at Morgan Stanley in New York.
Report by Lucia Mutikani; Edited by Alex Richardson and Andrea Ricci