US consumer spending up modestly; savings rise to 6-month high

[WASHINGTON] US consumer spending rose marginally for a second straight month in February as households boosted savings, the latest indication the economy lost momentum in the first quarter.

The Commerce Department said on Thursday that consumer spending, which accounts for more than two-thirds of US economic activity, increased 0.2 per cent last month after a similar gain in January.

Spending on long-lasting goods, such as motor vehicles, rebounded 0.2 per cent after tumbling 1.5 per cent in January.

Outlays on services rose 0.3 per cent, matching January's increase. Economists polled by Reuters had forecast consumer spending increasing 0.2 per cent in February.

There was also a moderation in monthly inflation readings after prices pushed higher in January. The personal consumption expenditures (PCE) price index excluding the volatile food and energy components rose 0.2 per cent last month after advancing 0.3 per cent in January.

That lifted the year-on-year increase in the so-called core PCE price index to 1.6 per cent, the biggest gain since February 2017, from 1.5 per cent in January. The core PCE index is the Federal Reserve's preferred inflation measure. It has been below the US central bank's 2 per cent target since mid-2012.

Economists believe the annual core PCE price index could accelerate to 1.9 per cent in March as last year's weak readings drop out of the calculation.

The steady rise in inflation last month also helped curb consumer spending. When adjusted for inflation, consumer spending was unchanged in February after falling 0.2 per cent in the prior month. That suggests a sharp slowdown in consumer spending in the first quarter after it surged at an eye-popping 4.0 per cent annualized rate in the fourth quarter.

The tepid consumer spending added to data on trade, housing and business spending on equipment that have left economists anticipating moderate economic growth in the first quarter.

The Atlanta Fed is currently forecasting GDP growth rising at a rate of 1.8 per cent in the January-March period. The economy grew at a 2.9 per cent pace in the fourth quarter.

In February, personal income rose 0.4 per cent and has now increased by the same margin for three straight months. Wages increased 0.5 per cent last month after climbing 0.6 per cent in January.

Savings increased to US$497.4 billion in February, the highest level since August 2017, from US$471.3 billion in the prior month.

The saving rate rose to a six-month high of 3.4 per cent from 3.2 per cent in January.

REUTERS