Consumer spending gain lags behind income for second month in Feb

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 per cent of the economy, rose 0.2 per cent after a similar advance at the start of the year, Commerce Department figures showed on Thursday. Incomes grew 0.4 per cent for a third month. The Federal Reserve's preferred measure of inflation climbed 1.8 per cent 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 per cent, 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 per cent from the previous month. Excluding food and energy, so-called core prices also increased 0.2 per cent and were up 1.6 per cent from February 2017, the biggest gain since April 2017.

While inflation has mostly remained below the central bank's 2 per cent 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 one-time 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 per cent in February after a 0.6 per cent gain, the data showed. Disposable income advanced 0.2 per cent after a 0.6 per cent jump that was the largest since Dec 2012.

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

While Fed officials remain upbeat about the outlook for households, economists are pencilling in some softening for the first quarter. The median forecast in a Bloomberg survey showed consumer spending slowing to a 2.1 per cent rate in the January through March period. That's about half as much as the 4 per cent annualised pace in the fourth quarter that helped boost GDP to a 2.9 per cent rate, a government report showed on Wednesday. BLOOMBERG