Consumer Spending Rises as Fuel Costs Fall
Consumer purchases adjusted for inflation rose in January, a sign the plunge in gasoline prices is helping boost the biggest part of the U.S. economy.
The 0.3% increase followed a 0.1% drop the prior month, a Commerce Department report showed March 2 in Washington. So-called nominal spending, which doesn’t take into account changes in price, declined 0.2%, more than estimated, while incomes grew 0.3% for a second month.
The best job market since 1999, low borrowing costs and cheaper fuel bills are driving household spending, which accounts for almost 70% of the economy. Consumption, having wrapped up its strongest quarterly performance in four years, may get further support as wages pick up and prices remain contained.
“There are many positives for the consumer right now, including strong job growth, lower gasoline prices and low interest rates,” Jennifer Lee, senior economist at BMO Capital Markets in Toronto, said before the report. “Demand is still looking healthy. Consumer spending should grow at a solid pace this quarter.”
Nominal spending was projected to fall 0.1%, according to the median forecast of 80 economists surveyed by Bloomberg News. Forecasts ranged from a 0.3% decrease to a 0.5% increase.
The Bloomberg survey median called for incomes to rise 0.4%.
Adjusting consumer spending for inflation, which generates the figures used to calculate gross domestic product, purchases of durable goods such as furniture and appliances rose 0.2% in January. Demand for non-durable goods also climbed 0.2%. Outlays on services increased 0.4%, the most since September.
The economy expanded at a 2.2% annualized rate in the fourth quarter, Commerce Department figures showed on Feb. 27. Consumer purchases grew at a 4.2% rate, the fastest since 2010.
Demand for automobiles remains steady. Major automakers all reported their best January U.S. vehicles sales in at least seven years, led by General Motors Co.
The average cost of regular gasoline dropped to $2.03 a gallon on Jan. 25, the cheapest since 2009, according to AAA, the biggest U.S. motoring group.
The plunge in energy expenses pushed the measure of inflation based on consumer spending, the Federal Reserve’s preferred gauge, down by 0.5% from the prior month. It was up 0.2% from a year earlier, the least since October 2009. The gauge hasn’t been above the central bank’s 2% goal since March 2012.
The core price measure, which excludes food and fuel, rose 0.1% from the prior month and was up 1.3% from January 2014.
An improving job market is helping households. Payrolls jumped by 257,000 in January to cap their strongest three-month run in 17 years. Lower fuel prices mean Americans can spend more on other goods and services.
Home-improvement retailers Lowe’s Cos. and Home Depot Inc. reported fourth-quarter profit that topped analysts’ estimates as sales get a boost from a boom in remodeling.
“Clearly it is a positive thing when a customer has more disposable income in their pocket,” Craig Menear, Home Depot’s chief executive officer, said on a Feb. 24 earnings call.
Some shoppers are also taking advantage of discounts that retailers are offering.
