US consumer spending gain lags income

US filings for unemployment benefits unexpectedly fell last week to the lowest level since January 1973

By BLOOMBERG

WASHINGTON • Consumer spending lagged behind income growth for a second month in February, showing American households were taking a breather after a late-2017 surge. Inflation, meanwhile, ticked up.

Purchases, which account for about 70% of the economy, rose 0.2% after a similar advance at the start of the year, Commerce Department figures showed yesterday. Incomes grew 0.4% for a third month. The US Federal Reserve’s (Fed) preferred measure of inflation climbed 1.8% from February 2017, the most in nearly a year.

Adjusting for changes in prices, spending was little changed after a January decline, consistent with economists’ forecasts for a slower pace of real household demand this quarter following the strongest gain in three years.

Consumers may be moderating their purchases after credit-card balances mounted in late 2017. While the saving rate rose to 3.4%, the highest since August 2017, spending could gather pace in coming months due to a robust labour market, elevated confidence and lower taxes.

The Fed’s preferred inflation gauge — tied to consumption — rose 0.2% from the previous month. Excluding food and energy, so-called core prices also increased 0.2% and were up 1.6% from February 2017, the biggest gain since April 2017.

While inflation has mostly remained below the central bank’s 2% target since 2012, Fed officials have said they expect to keep making progress and continue raising rates gradually.

The tax-cut legislation signed in December, and onetime bonuses announced by several companies in its wake, are helping to supplement workers’ take-home pay. Still, wages have been rising only gradually during the expansion even as hiring has exceeded expectations. That’s one reason some people have taken on more debt.

Wages and salaries increased 0.5% in February after a 0.6% gain, the data showed. Disposable income, or earnings adjusted for taxes and inflation, advanced 0.2% after a 0.6% jump that was the largest since December 2012.

The report follows disappointing results for retail sales, which unexpectedly fell in February for a third month amid a decline in purchases at automobile dealers.

While Fed officials remain upbeat about the outlook for households, economists are penciling in some softening for the first quarter (1Q). The median forecast in a Bloomberg survey showed consumer spending slowing to a 2.1% rate in the period.

That’s about half as much as the 4% annualised pace in the 4Q that helped boost gross domestic product to a 2.9% rate, a government report showed on Wednesday.

Durable goods spending, adjusted for inflation, rose 0.6% after a 1.6% decline in the prior month; nondurable goods purchases fell 0.3% after a 0.4% drop. Household outlays on services, adjusted for inflation, were little changed after a 0.1% gain.

Meanwhile, US filings for unemployment benefits unexpectedly fell last week to the lowest level since January 1973, further evidence that the labour market remains tight, Labour Department figures showed yesterday.

Jobless claims decreased by 12,000 to 215,000 (estimate: 230,000) Continuing claims rose by 35,000 to 1.87 million in the week ended March 17 (data reported with one-week lag).

Four-week average of initial claims, a less-volatile measure than the weekly figure, fell to 224,500 from the prior week’s 225,000.

Claims at the lowest level in 45 years underscore a persistent shortage of qualified workers that has made employers reluctant to fire staff. Applications for jobless benefits below the 300,000 tally are typically considered consistent with a healthy labour market.

Other aspects of the job market remain robust, with payrolls continuing to exceed expectations and an unemployment rate near the lowest since late 2000. Steady employment will help to sustain consumer spending, the biggest part of the economy.

The prior week’s reading was revised to 227,000 from 229,000. The unemployment rate among people eligible for benefits held at 1.3%.