Consumer Spending Posts Scant February Increase

U.S. consumer spending posted a tiny gain for the third straight month in February while income growth slowed sharply.

Consumer spending edged up 0.1 percent in February, matching similar lackluster gains in January and December, the Commerce Department reported Monday. Personal incomes rose a modest 0.2 percent in February after a much stronger 0.5 percent rise in January. The slowdown reflected a 0.1 percent drop in wages and salaries, the first drop in this key category since September.

Economists noted that consumer spending, after removing the effects of inflation, rose a slight 0.2 percent in February, while January was revised from an initial estimate of a 0.4 percent increase to a flat reading.

Sal Guatieri, senior economist at BMO Capital Markets, said this downward revision for January, coupled with the weak showing for February, prompted him to trim his expectation for overall economic growth to around 1.5 percent in the first quarter, down from 2 percent.

Chris Rupkey, chief financial economist at MUFG Union Bank in New York, said, “The consumers turned cautious at the start of the year and chose to save more of their paychecks rather than spend it. The stock market turbulence and increasing downside risks from the world economy did affect the consumers’ mood, apparently.”

Despite the recent weakness, economists are still looking for consumer spending to accelerate as the year moves forward, reflecting solid gains in employment which boosts incomes and fuels more spending.

A key price gauge followed by the Federal Reserve showed prices fell 0.1 percent in February and are up just 1 percent over the past 12 months.

The weakness seen in spending had been expected, given an earlier report which showed that retail sales fell in February, pulled down by falling gasoline sales.

The government on Friday revised its estimate for overall economic growth, as measured by the gross domestic product, to show the economy growing at an annual rate of 1.4 percent in the fourth quarter, an improvement from a previous estimate of 1 percent.

The Federal Reserve at its meeting this month left a key rate unchanged while signaling that it now expected to boost rates only two times this year, down from a previous expectation of four rate hikes.

One thing the Fed is closely watching is the performance of inflation, which for nearly four years has remained below the Fed’s target of an annual price increase of 2 percent per year. While overall inflation was up just 1 percent in February, prices excluding food and energy rose 1.7 percent for the 12 months ending in February.

Fed Chair Janet Yellen will discuss her views on the economy in a highly anticipated speech Tuesday before the Economic Club of New York.

The spending report showed that the saving rate edged up slightly to 5.4 percent of after-tax income in February, compared to 5.3 percent in January.