Shobhana Chandra Washington
CONSUMER spending barely rose in February as frigid temperatures kept households away from malls and car dealerships, adding to signs the US economy slowed at the start of this year.
The 0.1 percent gain in purchases followed a 0.2 percent drop in January, according to Commerce Department data issued yesterday in Washington. Adjusted for inflation, spending declined for the first time in almost a year.
Another report showed pending home sales climbed.
Car showrooms, restaurants and clothing stores were among places wanting for customers as Americans fought the chill by huddling at home. While warmer weather may soon bring out more shoppers, steady gains in payrolls have yet to push up wages, which would help bolster bigger gains in outlays.
“Consumer spending is looking soft here, some of it was the weather effect,” said Tom Porcelli, the chief US economist at RBC Capital Markets in New York, the top spending forecaster over the past two years. Consumption “will come back in the second quarter.”
Stocks in the US joined in a global rally amid investor optimism that central banks will boost stimulus to support growth.
The median forecast of 74 economists in a Bloomberg survey projected spending would rise 0.2 percent. Estimates ranged from little changed to a 0.5 percent gain.
Incomes climbed 0.4 percent in February for a second month, propelled by a jump in dividends, the report also showed. The Bloomberg survey median called for incomes to rise 0.3 percent. Wages and salaries increased 0.3 percent after a 0.6 percent gain in January.
Reduced estimate
Economists at Barclays reduced their tracking estimate for first-quarter gross domestic product after the report to a 1 percent annualised rate from 1.2 percent, with consumer spending growing at about a 2 percent pace.
Those at Morgan Stanley cut the growth projection to 0.8 percent from 0.9 percent.
That is less than half the 2.2 percent rate of expansion in the fourth quarter that was led by the biggest gain in consumer spending in eight years, revised Commerce Department data showed on Friday.
The 4.4 percent jump in household purchases was the biggest since the first three months of 2006.
Yesterday’s report also showed that adjusting consumer spending for inflation, which generates the figures used to calculate gross domestic product, purchases declined 0.1 percent, the first drop since April, after a 0.2 percent increase in the previous month.
Sales of new vehicles fell 3.1 percent, spending at restaurants declined 0.7 percent and purchases of men’s clothing also decreased.
The biggest surprise may have been outlays on services, which rose 0.1 percent after adjusting for inflation, the smallest gain since July. The category includes utilities, so economists were projecting a jump to help offset the weaker readings elsewhere.
Americans, especially those living in the eastern US, felt the pinch from higher heating bills that came due this month. Some 23 states had a top 10 coldest February and nine had their second-coldest, according to the National Oceanic and Atmospheric Administration. Residents in Chicago and Cleveland observed record-low February temperatures.
The cold weather also slowed showroom traffic, hurting car purchases. Ford Motor’s light vehicle sales slipped last month, while results at General Motors, Fiat Chrysler, Honda Motor and Nissan Motor rose less than analysts estimated.
An improving job market continues to work in favour of consumers. February marked the 12th consecutive month that payrolls climbed by at least 200 000, and the jobless rate was the lowest in almost seven years, Labour Department data showed.
“The consumer is in decent shape,” Karen Hoguet, chief financial officer at department store chain Macy’s, said during a March 24 conference presentation. At the same time, where customers were choosing to spend their money was “still going to be a challenge for retailers like us”, she said, citing electronics and cable services as alternate purchases.
Stabilising
Yesterday’s report also showed prices were stabilising. The Federal Reserve’s preferred measure of inflation, the price gauge based on the personal consumption expenditures, increased 0.2 percent from the prior month, the first advance since September, and was up 0.3 percent from a year earlier.
The core price measure, which excludes food and fuel, rose 0.1 percent from the prior month and increased 1.4 percent from February 2014.
The 1.3 percent year-to-year readings in January and December were the lowest since March 2014.
Inflation has not been above the Fed’s 2 percent goal since March 2012. Officials have said they would need to be reasonably sure that prices would approach their target in the medium term before they raised their benchmark interest rate for the first time since 2006.
Expectations that the first rate increase will occur later this year may be giving residential property a boost as prospective homebuyers try to lock in still-cheap mortgage borrowing costs.
The index of pending sales increased 3.1 percent to 106.9, the highest since June 2013, figures from the National Association of Realtors showed yesterday.
The gain was “driven by a steadily improving labor market, mortgage rates hovering around 4 percent and the likelihood of more renters looking to hedge against increasing rents”, Lawrence Yun, the NAR’s chief economist, said in a statement. – Bloomberg