Consumer spending posts smallest gain in six months
Rising incomes and confidence haven’t accelerated consumer spending, which posted its smallest gain in six months in February, the Commerce Department said Friday.
Personal consumption expenditures increased just 0.1%, below economists’ expectations and down from 0.2% in January. Spending increased 0.6% in December.
The slower spending growth came as incomes continued to rise strongly. Personal income grew 0.4% in February after an upwardly revised 0.5% jump the previous month, the Commerce Department said.
Inflation reduced the purchasing power of that extra cash.
The personal consumption expenditures price index increased 0.1% in February, which was down from a 0.4% increase the previous month.
But prices were up 2.1% for the 12 months ended February 28. That was fastest annual rate in nearly five years.
When adjusted for inflation, disposable incomes grew just 0.2% in February.
Rising prices also hit consumer spending, which after adjusting for inflation declined by 0.1%. Still, that was an improvement over a 0.2% decline in January.
So-called core inflation, which excludes volatile food and energy prices, increased 1.8% for the 12 months ended Feb. 28.
The Federal Reserve targets 2% annual core inflation.
Inflation had been low in the wake of the Great Recession. But prices have started to rise more quickly, which is a major reason that Fed policymakers increased a key interest rate in March after hiking it in December.
Fed officials have signaled they planned to inch up the rate two more times this year to help keep inflation from getting too high.
Americans chose to save more of their incomes in February, the Commerce Department said. Savings as a percentage of disposable income increased to 5.6%, the highest rate since October.