Cold weather depresses US consumer spending; Reuters inflation subdued

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© Reuters. A woman shops in Chinatown, New York City

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By Lucia Mutikani

WASHINGTON (Reuters) – US consumer spending declined the most in 10 months in February as a cold snap hit many parts of the country and the boost from a second round of economic reviews on middle and low income households wore off, despite the The decline subsided is likely to be temporary.

Consumer spending, which accounts for more than two-thirds of US economic activity, fell 1.0% last month after rebounding 3.4% in January, the Commerce Department said Friday. This was the biggest drop since April 2020, when the economy was hit by the shutdowns of non-essential businesses like restaurants to slow the spread of COVID-19 infections.

Personal income fell 7.1% after rising 10.1% in January. Economists polled by Reuters had forecast consumer spending to fall 0.7% and income 7.3% in February.

Unusually harsh weather in the second half of February, including severe winter storms in Texas and other parts of the densely populated South Region, depressed residential construction, factory production, orders and deliveries of manufactured goods last month.

However, activity is expected to pick up again in March with warmer weather, the $ 1.9 trillion White House pandemic rescue package and increased vaccinations against the coronavirus.

The massive relief package approved earlier this month sends additional checks of $ 1,400 to skilled households and extends the state safety net for the unemployed through September 6. The government reported Thursday that first-time unemployment benefit claims fell to an annual low last week.

US stocks opened higher. The dollar rose against a basket of other currencies. US Treasury bond prices were lower.

WIDE REDUCTION

The last month’s decline in consumer spending has been consistently down, with purchases of pharmaceuticals and recreational items falling sharply. Spending on goods fell 3.0% after rising 8.4% in January.

Spending on services rose 0.1% after rising 0.9% in January. Consumers spent more on utilities and health care in hospitals, but cut down on food.

Inflation fell last month when demand was weak. However, prices are expected to accelerate from March onwards due to the wider reopening of the economy and the decline in last year’s weak readings from the computation, as well as very accommodative fiscal and monetary policies.

Federal Reserve Chairman Jerome Powell told lawmakers this week that the expected rise in inflation over the year will be “neither particularly large nor sustained.”

The personal consumption expenditure price index (PCE) excluding the volatile food and energy component rose 0.1% after rising 0.2% in January. In the twelve months to February, the so-called PCE core price index rose 1.4% after rising 1.5% in January. The core PCE price index is the Fed’s preferred measure of inflation for its 2% target, a flexible average.

Adjusted for inflation, consumer spending declined 1.2% last month after rising 3.0% in January. The decline in so-called real consumer spending did not dampen enthusiasm for economic growth in the first quarter. A strong reversal is to be expected in the coming months.

The economy is expected to grow up to 7.5% this quarter after growing 4.3% in the fourth quarter. Growth this year could exceed 7%, which would be the fastest since 1984. The economy contracted 3.5% in 2020, its worst performance in 74 years.

Last month’s income was depressed by a decline in government transfers. The wages were also flat. The savings rate fell from 19.8% in January to a still high 13.6%.

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