US consumer spending declines as spending on goods declines; tight labor market

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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 increases by 0.5%; the savings rate goes from 6.1% to 6.3%
  • Core PCE price index gains 0.4%; up 5.4% year-on-year
  • Weekly jobless claims increase by 14,000 to 202,000

WASHINGTON, March 31 (Reuters) – U.S. consumer spending barely rose in February as higher spending on services was offset by lower purchases of motor vehicles and other goods, while Price pressure has intensified, with annual inflation rising the most since the early 1980s.

But the Commerce Department report released Thursday showed spending in January was much stronger than originally expected. That put consumer spending on track for solid growth this quarter, which would keep the economy expanding, despite growing headwinds from inflation fueled by shortages.

“Despite declining confidence due to the war (in Ukraine) and inflation, U.S. consumers are holding up, supported by strong job growth and accumulating 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 has been revised up to show spending rebounded 2.7% instead of 2.1% as previously reported. Economists polled by Reuters had forecast consumer spending to rise 0.5%.

A significant drop in COVID-19 infections has boosted demand for services such as restaurants, hotel stays, recreation, air travel and healthcare. Services rose 0.9%, the strongest in seven months, after rising 0.7% in January. But spending on goods fell 1.0% after jumping 6.5% the previous month.

The drop in purchases of goods, which likely signals the rotation of spending towards services, was led by a drop in motor vehicles. Consumers have also reduced their spending on food, furniture, leisure items and clothing. Gasoline spending increased at a rate of $27.1 billion.

Personal consumption

Gasoline prices soared in February and topped $4 a gallon this month after Russia invaded Ukraine on February 24. Prices have increased significantly in all areas.

The personal consumption expenditure (PCE) price index, excluding the volatile components of food and energy, rose 0.4% after rising 0.5% in January. The so-called PCE core price index jumped 5.4% year-on-year in February, the biggest gain since April 1983. The PCE core price index rose 5.2% over the 12 months ending in January.

The Federal Reserve this month raised its key rate by 25 basis points, the first hike in more than three years, and adopted a hawkish stance in its fight against inflation.

Although inflation is eating away at household budgets, consumers are enjoying some protection thanks to the massive savings accumulated during the pandemic as well as rising wages amid labor shortages. Economists estimate consumers are sitting on about $2.3 trillion in excess savings.

“We expect a good chunk of it to be available to households if they want to depend on it,” said Shannon Seery, an economist at Wells Fargo in New York.

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

Inflation

STRONG SALARY GAINS

Personal income rose 0.5% in February as wages rose 0.8%. The savings rate rose to 6.3% from 6.1% in January.

Adjusted for inflation, consumer spending fell 0.4%. Data for January has been revised up to show so-called real consumer spending jumped 2.1% instead of 1.5% as previously reported. Real consumer spending is what counts in the calculation of gross domestic product.

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

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

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

They were down from a record high of 6.149 million at the start of April 2020. There were nearly a record 11.3 million job vacancies on the last day of February, government data showed on Tuesday. , which left the gap between jobs and workers at 3.0% of the labor force and close to the post-war peak of 3.2% in December.

More workers likely returned to the labor market in March. The claims report showed the number of people receiving benefits after a first week of help fell by 35,000 to 1.307 million in the week ending March 19, the lowest since December 1969.

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

A third report by global outplacement firm Challenger, Gray & Christmas, showed US-based employers announced 21,387 job cuts in March, up 40.3% from February but down 30% from last year. Employers have also announced their intention to hire

105,224 workers this month.

Unemployment Insurance Claims and Challenger Gray

The government’s closely watched jobs report released on Friday is expected to show non-farm payrolls rose by 490,000 jobs in March, according to a Reuters survey of economists. The economy added 678,000 jobs in February.

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

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Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci

Our standards: The Thomson Reuters Trust Principles.


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