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Consumer Spending Gain Lags Behind Income for 2nd Month

Consumer Spending Gain Lags Behind Income for 2nd Month
(Dreamstime)

Thursday, 29 March 2018 10:22 AM

Consumer spending lagged behind income growth for a second month in February, showing American households were taking a breather after a late-2017 surge. Inflation, meanwhile, ticked up.

Purchases, which account for about 70 percent of the economy, rose 0.2 percent after a similar advance at the start of the year, Commerce Department figures showed Thursday. Incomes grew 0.4 percent for a third month. The Federal Reserve's preferred measure of inflation climbed 1.8 percent from February 2017, the most in nearly a year.

Adjusting for changes in prices, spending was little changed after a January decline, consistent with economists' forecasts for a slower pace of real household demand this quarter following the strongest gain in three years. Consumers may be moderating their purchases after credit-card balances mounted in late 2017.

While the saving rate rose to 3.4 percent, the highest since August 2017, spending could gather pace in coming months due to a robust labor market, elevated confidence and lower taxes.

The Fed's preferred inflation gauge — tied to consumption — rose 0.2 percent from the previous month. Excluding food and energy, so-called core prices also increased 0.2 percent and were up 1.6 percent from February 2017, the biggest gain since April 2017.

While inflation has mostly remained below the central bank's 2 percent target since 2012, Fed officials have said they expect to keep making progress and continue raising rates gradually.

The tax-cut legislation signed in December, and one-time bonuses announced by several companies in its wake, are helping to supplement workers' take-home pay. Still, wages have been rising only gradually during the expansion even as hiring has exceeded expectations. That's one reason some people have taken on more debt.

Wages and salaries increased 0.5 percent in February after a 0.6 percent gain, the data showed. Disposable income, or earnings adjusted for taxes and inflation, advanced 0.2 percent after a 0.6 percent jump that was the largest since December 2012.

The report follows disappointing results for retail sales, which unexpectedly fell in February for a third month amid a decline in purchases at automobile dealers.

While Fed officials remain upbeat about the outlook for households, economists are penciling in some softening for the first quarter. The median forecast in a Bloomberg survey showed consumer spending slowing to a 2.1 percent rate in the January through March period.

That's about half as much as the 4 percent annualized pace in the fourth quarter that helped boost gross domestic product to a 2.9 percent rate, a government report showed Wednesday.

Other Details

  • Durable goods spending, adjusted for inflation, rose 0.6 percent after a 1.6 percent decline in the prior month; nondurable goods purchases fell 0.3 percent after a 0.4 percent drop
  • Household outlays on services, adjusted for inflation, were little changed after a 0.1 percent gain

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Consumer spending lagged behind income growth for a second month in February, showing American households were taking a breather after a late-2017 surge.
consumer spending, saving, income, shopping
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2018-22-29
Thursday, 29 March 2018 10:22 AM
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