U.S. economy will likely grow about 8% this year: Signum's Charles Myers
U.S. household spending declined in February and incomes fell as the initial boost from stimulus checks at the start of the year faded.
Purchases of goods and services decreased 1 per cent from the prior month, following an upwardly revised 3.4 per cent surge in January, a Commerce Department showed Friday. That compared with estimates for a 0.8 per cent drop. Personal incomes fell 7.1 per cent, in line with the 7.2 per cent decline projected.
Wedged between two large relief packages, the softness seen in the February report will likely prove temporary. Spending and incomes are poised to surge in March as US$1,400 direct payments are distributed to millions of Americans.
As of Wednesday, the government had sent out about 127 million stimulus payments worth around US$325 billion. The checks, which are over double the size of the January disbursements, have the potential to spur spending at a time when vaccinations are rising and economic activity is beginning to pick up.
Like much of the February economic data, severe weather may have also curbed spending in the month. A host of retailers and restaurants temporarily closed amid the winter storms, and snow and ice kept many Americans from leaving their homes throughout various regions.
Inflation-adjusted personal spending decreased 1.2 per cent in February after a 3 per cent jump a month earlier. Goods outlays fell 3.3 per cent. Spending on services declined 0.1 per cent.
The personal saving rate fell to 13.6 per cent from a stimulus-fueled eight-month high of 19.8 per cent in January.
Disposable incomes, which exclude taxes and are adjusted for inflation fell 8.2 per cent last month.
The index of consumer prices that the Federal Reserve officially uses for its target rose 1.6 per cent in February from a year earlier, the biggest gain in a year. The core price index, which excludes more-volatile food and energy costs, increased 1.4 per cent, less than January’s 1.5 per cent gain.
The path of inflation has been a hotly debated topic among economists, lawmakers and Wall Street, especially in the wake of the US$1.9 trillion stimulus package signed into law earlier this month.
But inflation metrics will be temporarily impacted by so-called “base effects” starting with March data. Due to the very weak inflation prints seen at the start of the pandemic, year-over-year increases in the price metrics will appear large.
While Fed officials expect -- like the base effects -- any surge in prices will prove temporary, others point out that pent-up demand, rising materials costs and the latest stimulus package stand to make price pressures more lasting.
A separate report from the Commerce Department showed the U.S. merchandise-trade deficit widened to the biggest on record in February as imports dropped from an all-time high and exports retreated by a larger margin.