Consumer spending fell short of January’s projections as rising prices hit Americans where they feel it most – the wallet. As a result, leading inflation-adjusted purchases dropped by the largest margin since September of 2009 when it sank a full 1%. The 0.2% advance in spending followed a 0.5% increase in the prior month, the Commerce Department reported on Wednesday in Washington. The median forecast in a Bloomberg survey called for a 0.3% gain.
Incomes rose 0.4% for the second month in a row, yet inflation-adjusted disposable incomes had the biggest decrease since 2013. Disposable income decreased 0.2% after adjusting for inflation, breaking a streak of monthly gains that has lasted over three years. In the prior month, it increased 0.1%.
While experts say that the U.S. is still in a “decent spot”, the prior month’s results indicate a slow-down of momentum seen earlier this year. Additional increases in inflation could serve to limit faster growth for household spending, which accounts for nearly 70% of the economy. Concurrently, low borrowing costs and a tight job market should support consumers, whose confidence is increasingly on the upswing due to optimism regarding lower taxes under the administration of President Trump.
Describing the drop off in spending as “a more moderate start to this quarter” Tom Simons, an economist at Jefferies LLC in New York added, “Increasing prices are going to put some pressure on spending. Wage growth hasn’t been so strong that consumers will accelerate spending in the face of rising inflation.”
The latest figures imply that consumer spending will drive U.S. economic expansion. In January, household expenditures for services decreased 0.2% after adjusting for inflation. Household expenditures include items like legal help, health care, tourism, and personal care expenses such as haircuts. Due to a number of factors, these economic outlays are typically challenging for the government to accurately forecast.
Purchases of durable goods, including automobiles, also fell decreasing 0.8% after adjusting for inflation. This statistic reveals the greatest decrease since August, 2016 and follows a 1.8% increase.
The Fed, scheduled to meet March 14-15, 2017, are on the watch for signals that inflation is progressing closer to the central bank’s 2% goal. William Dudley and John Williams, two influential Fed policymakers, indicated a greater bent toward tightening monetary policy, even as soon as this month’s meeting.