U.S. consumer spending edges up 0.1% as households cut back on goods purchases
U.S. consumer spending barely rose in February and inflation retreated, suggesting the Federal Reserve could remain cautious about raising interest rates this year even as the labor market rapidly tightens.
Monday’s report from the Commerce Department also showed consumer spending in January was not as strong as previously reported. That, together with other data showing a widening in the goods trade deficit in February, indicated economic growth remained sluggish in the first quarter.
“It speaks to the weakening in domestic economic momentum at the start of this year, further reinforcing the Fed’s cautious monetary policy bias,” said Millan Mulraine, deputy chief economist at TD Securities in New York.
Consumer spending edged up 0.1 percent as households cut back on goods purchases after a downwardly revised 0.1 percent gain in January. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, was previously reported to have increased 0.5 percent in January.
When adjusted for inflation, consumer spending rose 0.2 percent. Inflation-adjusted consumer spending for January was revised down to show it unchanged rather than the 0.4 percent rise that was previously reported.
Given labor market strength and cheap gasoline, economists speculated that consumption had been hampered by a massive stock market sell-off at the start of the year which eroded consumer confidence.
In a separate report, the Commerce Department said the advance goods trade deficit widened to $62.9 billion in February from $62.2 billion, rising for a fourth straight month as an increase in exports was offset by a gain in imports.
The government will publish February’s trade data, which includes services, on April 5.
In the wake of the consumer spending and trade data, economists slashed their first-quarter gross domestic product growth estimates by as much as half a percentage point to as low as a 0.9 percent annualized rate. The economy grew at a 1.4 percent pace in the fourth quarter.
