Spending numbers hint at sluggish growth in Q1
WASHINGTON — U.S. consumers increased their spending at the weakest pace in six months, while the 12-month rise in consumer prices was the largest in nearly five years.
Consumer spending edged up 0.1 percent in February following a similarly sluggish 0.2 percent increase in January, the Commerce Department reported yesterday. The small gains suggest that overall economic growth likely slowed in the first quarter.
Incomes, however, were up a solid 0.4 percent in February, offering hope for stronger consumer spending in the months ahead.
Meanwhile, an inflation gauge closely watched by the Federal Reserve increased 2.1 percent in February compared to a year ago. It is the sharpest 12-month rise since March 2012 and slightly above the Fed’s 2 percent inflation target.
The Fed raised a key interest rate in March, just three months after a hike in December. Officials have sent signals that the pace of rate hikes will accelerate this year after seven years of stagnant rates at a record low near zero. During the last two years, the Fed nudged rates up just one time in each.
The overall economy grew at a 2.1 percent rate in the October-December quarter, supported by a strong gain in consumer spending.
But with the recent weakness in spending, which accounts for 70 percent of economic activity, many analysts believe growth in the January-March quarter could slow to a rate of 1.5 percent or less before accelerating in the months ahead.