WASHINGTON (AP) – U.S. consumers fell from months of retrenchment in January, boosting spending by a solid 2.4%, the sharpest rise in seven months and a sign that the economy may be ready to ‘ to maintain a recovery from the pandemic recession.
Friday’s Department of Commerce report also showed that personal income, which provides the fuel for spending, rose 10% last month, the biggest gain in nine months, boosted by cash payments most Americans receive from the government has.
The spending increase in January followed two monthly spending declines that raised concerns that consumers, who run most of the economy, have been abolished, are too anxious to travel, shop. Last month’s sharp gains suggest that many people are gaining more confidence in spending, especially after receiving $ 600 checks awarded to most adults in a federal economic aid package last month.
“The economy weakened late last year as fiscal support faded and the pandemic increased, but now it looks like it’s coming back to life,” said Mark Zandi, chief economist at Moody’s Analytics.
The government also reported on Friday that inflation, according to a benchmark elected by the Federal Reserve, rose a moderate 0.3% in January. This has seen prices rise by just 1.5% over the past 12 months, well below the Fed’s target of 2%.
In addition to receiving cash payments, many Americans who have managed to keep their jobs have also been saving money for several months rather than spending it. It could predict the economy later this year, if consumers are increasingly willing to spend, the vaccines will be wider and become a version of President Joe Biden’s $ 1.9 billion economic aid proposal, which includes additional cash payments for individuals. issued.
Concerns that a strengthening economy will accelerate inflation have boosted bond yields. On Thursday, yields on the U.S. treasury note moved to more than 1.5% for ten years – a level not seen for more than a year and well above the 0.92% with which it traded only two months ago.
The move caused alarm on Wall Street and caused deep sales in the stock market. Some investors fear that rising interest rates and the threat of inflation could lead to the Fed raising its default rate too quickly in the short term, possibly derailing the economy. The tame inflation in Friday’s government report shows that price increases so far are mostly mild.
In testimony to Congress this week, Fed Chairman Jerome Powell underestimated the risk of inflation and instead emphasized the economy’s struggle. Dismissal is still high. And ten million jobs remain lost due to the pandemic that broke out almost a year ago. This is a deeper job loss than the Great Recession of 2008-2009.
Despite the weakened labor market, key sectors of the economy are still showing signs as vaccinations increase and government bailouts work through the economy. The Fed’s ultra-low rate policy also provides significant support.
Retail sales rose last month. Factory production also rose, almost recovering just before the pandemic. And sales of newly built homes rose in January.
Friday’s report showed that consumers increased their purchases of durable goods – from cars to appliances – by 8.4% last month. The increase was led by spending on cars, household appliances and leisure goods. Expenditure on non-durable goods increased by 4.3%, with a sharp increase in demand for clothing and food.
In contrast, overall spending on services, which has been hampered for months by the unwillingness of many consumers to venture into their homes, rose only a modest 0.7%. But the weakness partly reflects a decline in spending on utilities. More encouraging was that spending on restaurants and hotels increased by 5.7%. Further gains are likely in the coming months if viral cases continue to fall and more vaccines are administered.
Consumers saved a significant portion of their income last month: the personal savings rate rose to 20.5% from 13.4% in December. It was the highest savings rate since May last year in the aftermath of the outbreak of the pandemic. With so many Americans traveling outside the city, shopping and eating inside, the savings rate has risen, and this has contributed to the expectation of an increase in spending as people again feel comfortable resuming their previous spending habits.
Gregory Daco, chief economist at Oxford Economics, said he thought the high savings rate, coupled with pent-up consumer demand and further federal aid, would boost economic growth to 7% this year. This would be the strongest growth in the calendar year since 1984.
“An economic upturn can be sustained with an improving health situation and more stimulus,” Daco said. “The combination of a healthier economy and more government stimulus should hit back strongly by the middle of the year.”