US consumer spending cools as outlays on goods decline; labor market tightening

People pay for their purchases at a supermarket in Manhattan, New York, U.S., March 28, 2022. REUTERS/Andrew Kelly

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  • Consumer spending increases 0.2% in February
  • Income rises 0.5%; savings rate rises to 6.3% from 6.1%
  • Core PCE Price Index Gains 0.4%; 5.4% year-on-year
  • Weekly jobless claims rise from 14,000 to 202,000

WASHINGTON, March 31 (Reuters) – U.S. consumer spending barely rose in February as a rise in spending on services was offset by falling purchases of motor vehicles and other goods, while rising price pressures, with annual inflation rising highest since the early 1980s.

But Thursday’s Commerce Department report showed spending in January was much higher than initially estimated. That put consumer spending on track for solid growth this quarter, which should keep the economy expanding, despite rising headwinds from shortage-driven inflation.

“Despite falling confidence due to the war (in Ukraine) and inflation, US consumers are holding strong, supported by strong job growth and accumulated savings,” said Sal Guatieri, senior economist at BMO Capital Markets. in Toronto.

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Consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.2% last month. Data for January was revised up to show disbursements picked up 2.7% instead of the 2.1% previously reported. Economists polled by Reuters had forecast consumer spending rising 0.5%.

A significant decline in COVID-19 infections fueled demand for services such as dining out, hotel stays, recreation, air travel, and health care. Services rose 0.9%, the most in seven months, after rising 0.7% in January. But spending on goods fell 1.0% after rising 6.5% the previous month.

The drop in purchases of goods, likely indicating the rotation of spending back to services, was led by a drop in motor vehicles. Consumers also reduced spending on food, home furnishings, recreational items and clothing. Spending on gasoline increased at a rate of 27.1 billion dollars.

personal consumption

Gasoline prices soared in February and topped $4 a gallon this month following the Russian invasion of Ukraine on February 24. Prices have increased dramatically across the board.

The personal consumption expenditures (PCE) price index, excluding volatile food and energy components, rose 0.4% after rising 0.5% in January. The so-called Core PCE Price Index rose 5.4% year-on-year in February, the biggest gain since April 1983. The Core PCE Price Index rose 5.2% in the 12 months to January.

The Federal Reserve this month raised its policy rate by 25 basis points, the first increase in more than three years, and took an aggressive stance in its fight against inflation.

While inflation is taking a toll on household budgets, consumers are getting some protection from huge savings accumulated during the pandemic, as well as rising wages amid worker shortages. Economists estimate that consumers have about $2.3 trillion in excess savings.

“We’re hoping a decent chunk will be available to households if they want to rely on it,” said Shannon Seery, an economist at Wells Fargo in New York.

Stocks on Wall Street were trading lower. The dollar rose against a basket of currencies. US Treasury yields fell.

Inflation

STRONG SALARY EARNINGS

Personal income increased 0.5% in February, and wages soared 0.8%. The savings rate rose to 6.3% from 6.1% in January.

When adjusted for inflation, consumer spending fell 0.4%. Data for January was revised up to show so-called real consumer spending rose 2.1% instead of 1.5% as previously reported. Real consumer spending is what matters in calculating gross domestic product.

“A combination of downward revisions to last year’s data and an upward revision to January profit means real consumption is on track for a solid 4.0% annualized gain in the first quarter,” said Michael Pearce. , senior US economist at Capital Economics in New York.

Growth estimates for the first quarter range from an annualized rate of 0.4% to a pace of 2.8%. The economy grew at a rate of 6.9% in the fourth quarter.

The shortage of workers keeps layoffs very low. In a separate report Thursday, the Labor Department said initial claims for state jobless benefits increased by 14,000 to a seasonally adjusted 202,000 for the week ending March 26. Still, applications remained well below their pre-pandemic average.

They are down from an all-time high of 6.149 million in early April 2020. There were a near record 11.3 million job openings on the last day of February, government data showed on Tuesday, leaving the gap of jobs-workers at 3.0% of the workforce and near the postwar high of 3.2% in December.

More workers likely returned to the workforce in March. The claims report showed the number of people receiving benefits after an initial week of help fell 35,000 to 1.307 million during the week ending March 19, the lowest since December 1969.

“The labor market remains in excellent shape in the first quarter,” said Stuart Hoffman, chief economic adviser at PNC Financial in Pittsburgh, Pennsylvania.

A third report from global outplacement company Challenger, Gray & Christmas, showed that US-based employers announced 21,387 job cuts in March, an increase of 40.3% from February, but a decrease 30% compared to last year. Employers also announced plans to hire

105,224 workers this month.

Unemployment Claims and Challenger Gray

Friday’s closely watched government employment report is likely to show nonfarm payrolls rose by 490,000 jobs in March, according to a Reuters survey of economists. The economy created 678,000 jobs in February.

The unemployment rate is forecast to fall to a new two-year low of 3.7% from 3.8% in February.

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Information from Lucía Mutikani; Edited by Chizu Nomiyama and Andrea Ricci

Our standards: The Thomson Reuters Trust Principles.

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