Consumer spending retreats. Just a blip or a sign of more stress on the U.S. economy?

News Room
3 Min Read

The numbers: Consumer spending rose by a scant 0.2% in February, a big slowdown from the prior month that suggests households may have gotten more cautious as strains on the economy intensify.

Analysts polled by The Wall Street Journal had forecast a 0.3% increase. The surge in sales in January, meanwhile, was revised up slightly to 2%.

Incomes rose 0.3% in February, the government said Friday.

Key details: Americans spent less last month on new cars and trucks, continuing an up-and-down pattern that has been a staple since the pandemic. A burst of sales in January had padded consumer spending in the first month of the year.

“Most of the volatility in spending in the past two months is due to big swing in car sales, which in turn have more to do with availability than demand,” said chief economist Chris Low of FHN Financial.

Spending also declined on prepared foods and hotels. Americans have been spending a lot of money on eating out and traveling.

Consumers increased spending on necessities such as housing, health care, groceries and drugs, leaving them less cash to spend on discretionary goods such as hobby items or recreation.

The U.S. savings rate, meanwhile, rose again to 4.6% and hit a 13-month high . Savings had fallen late last year to the lowest level since 2005.

A higher savings rate could be a sign that Americans are taking precautions in case a recession strikes.

The Federal Reserve is raising interest rates to combat high inflation, a strategy that typically slows the economy and raises the risk of a downturn.

The so-called PCE price index, the Fed’s favorite inflation barometer, increased a milder 0.3% in February. But inflation is still running high.

Big picture: The surge in spending in January was widely viewed as a one-off that was unlikely to last. Americans are still coping with high inflation and rising interest rates, and they are saving a bit more amid talk of recession.

Households are still spending enough money to keep the economy out of recession, however. Most Americans who want a job can find one and increasing wages have taken some of the sting out of inflation.

Looking ahead: “Although consumer spending growth is strong, it is set to fade over the course of 2023 as job growth slows and the drags from higher interest rates and declining household wealth increase,” said chief economist Gus Faucher of PNC Financial Services.

Market reaction: The Dow Jones Industrial Average
and S&P 500
rose in Friday trades.

Read the full article here

Share this Article
Leave a comment

Leave a Reply

Your email address will not be published. Required fields are marked *