US consumer spending falls short of projections

US consumer spending in January was short of projections while inflation eased, an early read on the economy in the first quarter that may add to concerns about the outlook.

Purchases, which account for about 70 per cent of the economy, rose 0.1 per cent from the prior month after a downwardly revised 0.6 percent drop, according to a commerce department report on Friday. Personal income rose 0.2 per cent in February, also less than forecast.

The spending figures, which reflected weaker sales of new car, signals first-quarter growth faces additional headwinds, though surveys show consumers remain generally upbeat despite projections for slower expansion. At the same time, tame inflation reinforces Fed projections for no interest-rate hikes this year.

Guage

The Fed’s preferred price gauge – tied to consumption -– ell 0.1 per cent in January from the previous month and was up 1.4 per cent from a year earlier, matching the annual projection with the slowest reading since late 2016.

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Excluding food and energy, so-called core prices rose 0.1 per cent, less than estimated. The index was up 1.8 per cent from January 2018, also below forecasts, after an upwardly revised 2 per cent gain.

A report Thursday showed the expansion decelerated to a 2.2 percent pace in the fourth quarter, and economists surveyed by Bloomberg project 1.5 percent this quarter, the slowest in two years.

The spending data add to signs of weakness just ahead of the February retail sales report Monday. The update will be closely watched after December transactions plunged 1.6 per cent, the most since 2009, before rebounding in January.

The median forecasts in Bloomberg survey called for spending to advance 0.3 per cent in January and incomes to increase 0.3 per cent in February.

The data did not include February figures on spending or PCE inflation because of delays related to the five-week shutdown that ended on January 25th. The next report on April 29th will combine personal spending and PCE price data for February and March with income figures for March, according to the Commerce Department.

Adjusted for inflation, January spending on goods dropped 0.2 percent on a monthly basis while purchases of services increased, driven by financial services and insurance.

Rate

The saving rate fell to a still-elevated 7.5 per cent in January from 7.7 per cent the prior month.

The slower-than-forecast core inflation gives Fed officials time to wait for signs of a pickup before considering resuming their hikes. Chairman Jerome Powell said this month rates could be on hold for “some time” as inflation remains muted and global risks cloud the outlook.

While the central bank targets 2 per cent inflation including all items, it looks to the core gauge as a better indicator of underlying price trends.

The Fed noted in its last policy statement that overall inflation has declined “largely as a result of lower energy prices.”

Minneapolis Fed president Neel Kashkari said Friday that he expects economic growth in 2019 and 2020, though it’s always possible there will be a recession. Wage growth is ticking up but isn’t fuelling higher inflation, he said in a Fox Business Network interview, adding that it’s “way too soon” to make judgment on rate moves next year. – Bloomberg