Consumers will probably be fine after weak start to year
The disappointing start to the year for Americans’ spending probably won’t be the story for the rest of 2017: Faster income growth, higher confidence and a robust labor market are all in place to help ensure a rebound.
Personal spending advanced just 0.1 percent in February after a 0.2 percent gain a month earlier, reflecting fewer auto purchases and a drop in outlays for electricity and natural gas amid milder weather, Com- merce Department data showed Friday. Incomes, however, climbed 0.4 percent from January and were up 4.6 percent from February of last year, the largest gain since May 2015.
Economists, despite projections of softer consumption in the first quarter that’s been a common theme the last three years, expect stronger spending growth will reemerge. One cautionary note is the steady pickup in inflation, which last month exceeded the Federal Reserve’s goal for the first time since 2012 and will pinch wallets.
“It’s a weak start to the year,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “A lot of it was the weather, and spending could have been held back by the slow payout of tax refunds. This is a blip, and consumer spending will recover in the second quarter. The fundamentals for spending look good.”
Separate figures from the University of Michigan showed consumer sentiment climbed in March as a gauge of perceptions about current conditions including personal finances rose to the highest level since July 2005.
The Commerce Depart- ment’s personal consumption expenditures price index, the Fed’s preferred measure of inf lation because it’s based on what consumers are purchasing, rose 2.1 percent in February from a year earlier, the fastest pace in almost five years. Central bankers, who raised interest rates at their March meeting, are expected to lift them further this year following progress on their full employment and 2 percent inflation goals. Adjusting consumer spending for inflation, which generates the figures used to calculate gross domestic product, purchases fell 0.1 percent after a 0.2 percent decrease the previous month.