US consumer spending posts scant February increase

AP News
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Posted: Mar 28, 2016 12:02 PM
US consumer spending posts scant February increase

WASHINGTON (AP) — U.S. consumers barely increased their spending in February and spent less in January than the government had earlier estimated. The pullback led some analysts to downgrade their expectations for the economy's growth during the January-March quarter.

Consumer spending edged up a tiny 0.1 percent last month, the Commerce Department said Monday. And it revised down its estimate of spending growth in January from a solid 0.5 percent gain to a much weaker 0.1 percent, which matched December's lackluster figure.

With consumer spending, which fuels about 70 percent of the economy, off to a weak start in 2016, some analysts predict just 1 percent annual economic growth in the first quarter — half the increase they had earlier foreseen.

"Consumers got off to a soggy start this year," said Sal Guatieri, senior economist at BMO Capital Markets. But Guatieri said he still expects an acceleration as the year progresses, driven by solid job growth and low borrowing costs.

The report showed that incomes edged up just 0.2 percent in February, though that followed a robust 0.5 percent gain in January, the strongest income growth in seven months.

Economists have been surprised that lower gas prices have yet to drive more spending. But some suggested that many households may have decided to increase savings first and spend more later. Monday's spending report showed that the saving rate rose to 5.4 percent of after-tax income in February, up from 5.3 percent in January to the highest level in a year.

"The good news is the consumer has plenty of powder to shoot with if the outlook starts to improve, with all the money they have set aside for a rainy day," said Chris Rupkey, chief financial economist at MUFG Union Bank in New York.

Rupkey suggested that the tepid spending increases in January and February showed that consumers had turned cautious at the start of the year in the face of "stock market turbulence and increasing downside risks from the world economy."

A key price gauge followed by the Federal Reserve showed that prices fell 0.1 percent in February and have risen just 1 percent over the past 12 months, well below the Fed's inflation target of 2 percent.

Last month's weakness in spending had been expected given an earlier report which showed that retail sales fell in February, pulled down by falling gasoline sales.

On Friday, the government revised its estimate for overall economic growth, as measured by the gross domestic product. It showed the economy growing at an annual rate of 1.4 percent in the fourth quarter, an improvement from a previous estimate of 1 percent.

After a policy meeting this month, the Fed left a key rate unchanged while signaling that it now expects to raise rates only twice this year, down from a previous expectation of four rate hikes.

One thing the Fed is closely watching is the performance of inflation, which for nearly four years has remained below the Fed's target level. Fed Chair Janet Yellen will discuss her views on the economy in a speech Tuesday before the Economic Club of New York.