U.S. incomes up, but spending slows down

U.S. personal spending decelerated in January to a still-solid pace, suggesting momentum among American consumers eased somewhat at the start of the year ahead of the coronavirus concerns.

Personal spending, which accounts for about two-thirds of the economy, rose 0.2 percent from the prior month after an upwardly revised 0.4 percent gain in December, Commerce Department data showed Friday that missed the median estimate in Bloomberg’s survey of economists.

The Commerce Department said Friday that consumer spending showed the smallest gain since October. Personal incomes, however, jumped 0.6 percent, the biggest rise in nearly a year, spurred by bigger paychecks and an increase in Social Security benefits stemming from a cost of living adjustment.

The additional income could help offset the likely drag from this week’s stock market plunge and the broader threat from the coronavirus, which has caused many economists to slice their estimates for growth in the first three months of the year.

businesses have pulled back on investment, consumption has become more crucial for growth, shouldering the weight of an economy already buffeted by trade uncertainty and the 737 Max grounding even before it confronted the virus outbreak.

New vehicles were the main driver of the rise in personal spending on goods, while services were supported by food and accommodation. That followed retail sales data out earlier this month that showed retail sales increased for a fourth-straight month. Still, the “control group” tracking underlying demand was unchanged.

The report comes as the rising virus death toll and cases spreading to new nations have sent stocks plunging. Adjusted for inflation, consumer purchases for goods and services saw a secondstraight 0.1 percent gain from the previous month, missing projections for acceleration.

One element supporting consumer strength is higher incomes, as companies offer higher pay in order to attract and retain workers in a tight labor market. Disposable income also climbed 0.6 percent, the most since December 2018, following a 0.1 perAs cent gain in the prior period.

The personal saving rate climbed to 7.9 percent, the most since April, from 7.5 percent the prior month.

The broader personal consumption expenditures price gauge, which the Fed officially targets for 2 percent inflation, climbed 0.1 percent from the prior month and was up 1.7 percent from a year earlier, both missing estimates.

Should coronavirus spread in the United States and more broadly overseas, economists worry that a sharp, if brief, recession could ensue.