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US consumer spending slows in January; income surges

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US consumer spending rose less than expected in January, a loss of momentum that could be exacerbated by the rapidly spreading coronavirus.

[WASHINGTON] US consumer spending rose less than expected in January, a loss of momentum that could be exacerbated by the rapidly spreading coronavirus, which has triggered a sharp stock market sell-off and revived fears of a recession.

The Commerce Department said on Friday consumer spending, which accounts for more than two-thirds of US economic activity, increased 0.2 per cent month as unseasonably mild weather reduced demand for heating and undercut sales at clothing stores.

Data for December was revised higher to show consumer spending rising 0.4 per cent, instead of the previously reported 0.3 per cent increase. Economists polled by Reuters had forecast consumer spending gaining 0.3 per cent in January.

Wall Street's main indexes slipped into correction territory on Thursday, with the yield on the benchmark 10-year Treasury note plumbing record lows. Financial markets view the coronavirus epidemic as the catalyst that could interrupt the longest economic expansion on record, now in its 11t year.

The coronavirus has killed more than 2,000 people and infected at least 80,000 people, most of them in China.

Money markets have increased their bets on the prospect of more Federal Reserve interest rate cuts. The US central bank cut rates three times last year. The coronavirus outbreak could challenge the Fed's desire to keep monetary policy on hold at least through 2020.

With consumer spending tepid, inflation remained benign. Consumer prices as measured by the personal consumption expenditures (PCE) price index edged up 0.1 per cent in January. The PCE price index was held back by a 0.7 per cent drop in the cost of energy goods and services, offsetting a 0.3 per cent gain in food prices.

The PCE price index increased 0.3 per cent in December. In the 12 months through January, the PCE price index accelerated 1.7 per cent. That was the biggest gain since December 2018 and reflected the drop of 2019's low readings from the calculation. The PCE price index advanced 1.5 per cent year-on-year in December.

Excluding the volatile food and energy components, the PCE price index ticked up 0.1 per cent in January after rising 0.2 per cent in December. That lifted the annual increase in the so-called core PCE price index to 1.6 per cent in January from 1.5 per cent in December.

The core PCE index is the Fed's preferred inflation measure. It missed the central bank's 2 per cent target every month in 2019.

When adjusted for inflation, consumer spending nudged up 0.1 per cent in January after rising by the same margin in the prior month. That suggests consumer spending got off to a slow start in the first quarter after cooling considerably in the final three months of 2019.

The government reported on Thursday that consumer spending increased at a 1.7 per cent annualised rate in the fourth quarter, stepping back from the July-September quarter's brisk 3.2 per cent pace. The economy grew at a 2.1 per cent rate in the fourth quarter, matching the third quarter's pace.

Despite last month's tepid gain in spending, consumer fundamentals remain healthy. Personal income jumped 0.6 per cent in January, the most since February 2019, after gaining 0.1 per cent in December. Income was boosted by the annual cost of living adjustment for social security recipients and other government welfare programmes.

Wages rose 0.5 per cent in January after gaining 0.1 per cent in the prior month. With income growth outpacing consumer spending, savings raced to US$1.33 trillion last month, the highest since March 2019, from US$1.26 trillion in December. 

REUTERS