Feb. 29 -- Consumer spending in the U.S. rose more than forecast in January, reflecting a jump in prices that is eroding Americans' buying power.
The 0.4 percent rise in spending followed a 0.3 percent gain in December, the Commerce Department said today in Washington. The Federal Reserve's preferred measure of inflation climbed 0.3 percent, the most in four months.
After adjusting for the increase in prices, spending stalled for a second month, raising concern the biggest part of the economy is faltering as fuel costs rise, property values fall and banks restrict lending. Federal Reserve Chairman Ben S. Bernanke this week signaled the central bank is prepared to again lower the benchmark interest rate to revive growth.
``The consumer sees bad news on every front and is pulling back,'' Nigel Gault, chief U.S. economist at Global Insight Inc. in Lexington, Massachusetts, said before the report. ``Although people were spending more, it was going into higher costs for food and fuel, and they weren't buying more stuff.''
Treasuries, which rose earlier today, stayed higher after the report. Ten-year note yields dropped to 3.59 percent at 8:35 a.m. in New York, from 3.67 percent late yesterday.
Economists forecast spending would rise 0.2 percent, after an originally reported 0.2 percent increase in December, according to the median of 69 estimates in a Bloomberg News survey. Projections ranged from a drop of 0.1 percent to a gain of 0.4 percent.
Incomes Rise
Incomes rose 0.3 percent after a 0.5 percent gain the prior month, today's report showed. The median forecast was a gain of 0.2 percent.
The report's measure of overall prices rose 0.4 percent and was up a more-than-expected 3.7 percent in the year ended January, the most since July 1991.
The inflation gauge tracked by the Fed rose 2.2 percent from January 2007.
The savings rate dropped 0.1 percent for a second month. A negative rate suggests consumers are drawing down savings to maintain spending.
Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, dropped 1.3 percent. Purchases of non-durable goods decreased 0.2 percent and spending on services, which account for almost 60 percent of all outlays, increased 0.4 percent.
Job Loss
The economy lost jobs in January for the first time in more than four years, and economists surveyed by Bloomberg this month forecast the unemployment rate will rise through midyear.
Americans' confidence in the economy has been shaken as the housing slump weakens the economy, a report may show later today. The Reuters/University of Michigan final consumer sentiment index probably fell this month to a 16-year low of 70, according to economists surveyed.
Toll Brothers Inc., the largest U.S. luxury homebuilder, this week reported its biggest quarterly loss in 22 years as the worst housing recession in more than two decades forced the company to write down the value of developments.
``Ceaseless talk of a recession continues to dampen the mood of consumers,'' Chief Executive Officer Robert Toll said on a Feb. 27 conference call. ``This drumbeat, coupled with concerns over mortgages, the direction of home prices, and foreclosures, has kept pent-up demand on the sidelines.''
Growth Concern
For now, policy makers have signaled they are more concerned about the economic growth outlook than the acceleration in inflation.
``Downside risks to growth remain,'' Bernanke said in semiannual testimony to Congress this week. The Fed ``will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks.''
Investors see a 100 percent chance the Fed will lower the benchmark rate at least half a point by the end of the March 18 meeting, futures trading shows. Policy makers have cut the rate by 2.25 percentage points since September, to 3 percent.
The Congress and the administration have also passed a $168 billion stimulus package to try to revive growth. Still, a Bloomberg/Los Angeles Times survey from Feb. 21 to Feb. 25 showed most Americans plan to save rather than spend the plan's tax rebates, indicating it may give less of a boost than intended.
No comments:
Post a Comment