Consumer spending up 0.2% in January; price gauge climbs
WASHINGTON — U.S. consumer spending rose at a sluggish pace in January, the Commerce Department said Wednesday.
Consumer spending increased 0.2 percent in January, after a 0.5 percent gain in December. Spending on services — from haircuts to health care — was flat, and Americans spent less on longlasting goods such as autos and appliances.
Prices also rose in a sign of increasing inflation. A measure of inflation closely watched by the Federal Reserve rose 0.4 percent in January and has increased 1.9 percent in the past 12 months. That’s the biggest year-overyear gain in more than four years.
That nearly matches the Fed’s target of 2 percent and may make a rate increase by the Fed more likely in the coming months.
Excluding the volatile food and energy categories, core prices rose 0.3 percent in January and 1.7 percent in the past 12 months.
Surveys of consumers have shown a burst of optimism since the presidential election, yet that has only intermittently translated into more spending. The Conference Board’s consumer confidence index jumped to a 15-year high in February after a modest dip in the previous month.
Measures of consumer health are important for growth because consumer spending drives about 70 percent of economic activity.
Income growth acceler-
ated slightly in January, the data showed, rising 0.4 percent. That was slightly better than the previous two months.
Yet rising inflation is offsetting some of that gain and may slow spending in the coming months. Adjusted for taxes and price increases, Americans’ incomes actually slipped 0.2 percent in January, the largest decline in more than three years.
Wednesday’s figures suggest that the economy is still growing at a modest pace. Growth was just 1.9 percent at an annual pace in the final three months of last year, the government said Tuesday. That was sharply lower than the 3.5 percent increase in the third quarter.
Manufacturing expanded in February at the fastest pace since August 2014 as factory managers reported stronger orders and production.
The Institute for Supply Management’s index climbed to 57.7, the sixth straight advance, from 56 a month earlier, the Tempe, Ariz.-based group’s report showed Wednesday. Readings above 50 indicate growth. The median forecast in a Bloomberg survey of economists was 56.2.
The organization’s gauge of orders increased to the highest level in just over three years, while an index of production posted its best reading since March 2011. The data were preceded by recent regional indicators showing similar strength that has prevailed since the presidential election as companies begin to step up investment and the global economy stabilizes.
“Things look good at this point,” Bradley Holcomb, chairman of the institute’s survey committee, said during a conference call with reporters. “I don’t see anything here, or in the winds, that would suggest we can’t continue with this kind of pace going forward in the next few months.”
Seventeen of 18 industries surveyed by the purchasing managers’ group, the most since August 2014, posted growth in February, including textiles, apparel, machinery and computers. Furniture was the only industry that shrank.
Builders cut back on construction spending in January by the largest amount in nine months, with weakness stemming from the biggest reduction in government activity in nearly 15 years, the Commerce Department reported Wednesday.
Construction spending fell
1 percent in January. It was the first decline since September and the biggest drop since a 2.9 percent dip in April.
Spending on government projects tumbled 5 percent, the largest one-month drop since March 2002.
For January, spending by the federal government on construction projects was down 7.4 percent, while spending by state and local governments fell 4.8 percent. The overall decline in government spending pushed total activity in the category down to a seasonally adjusted annual rate of $268.7 billion, the lowest level since last March.
Residential construction showed a modest gain, while private nonresidential activity was flat.