WASHINGTON: US consumer spending increased by the most in seven months in January as the government doled out more pandemic relief money to low-income households and new COVID-19 infections dropped, positioning the economy for faster growth in the first quarter.
Despite the strong rebound in consumer spending reported by the Commerce Department on Friday, price pressures were muted. Inflation is being closely watched amid concerns from some quarters that President Joe Biden’s proposed $1.9 trillion Covid-19 recovery package could cause the economy to overheat.
The plan, being considered by the US Congress, would be on top of a rescue package worth nearly $900 billion approved by the government in late December. Federal Reserve Chair Jerome Powell has played down the inflation fears, citing three decades of lower and stable prices.
“Thanks to Washington, the economic outlook in the near future is sunny’’, said Sung Won Sohn, finance and economics professor at Loyola Marymount University in Los Angeles.
Consumer spending, which accounts for more than two-thirds of US economic activity, jumped 2.4 per cent last month.
That was the biggest gain since last June and ended two-straight monthly declines.
Personal income shot up 10 per cent, the largest increase since last April when the government disbursed the first round of stimulus checks. Income rose 0.6 per cent in December.
The recent stimulus package included $600 cheques to mostly low-income and some middle-income Americans.
The package also extended a government-funded weekly unemployment subsidy as well as benefits for millions of people who do not qualify for state unemployment programmes as well as those who have exhausted their six months of eligibility. These benefits expire in mid-March.
The consumer spending report added to upbeat data this month on manufacturing output, building permits and home sales.
Consumers bought motor vehicles, recreation goods, food and beverages. They also boosted spending on services such as hotel accommodations and restaurants, as well as doctor visits.
Economists had forecast consumer spending rebounding 2.5 per cent in January and income accelerating 9.5 per cent.
US stocks were trading lower.
When adjusted for inflation, consumer spending increased 2 per cent last month after decreasing 0.8 per cent in December. But robust consumer spending is drawing in imports.
In a separate report on Friday, the Commerce Department said the goods trade deficit increased 0.7 per cent to $83.7 billion last month, with imports outpacing a rise in exports. The department also reported a 0.6 per cent decrease in retail inventories, though stocks at wholesalers surged 1.3 per cent.
The drag on economic growth from the widening goods trade deficit and slower pace of inventory accumulation will likely be blunted by the strong consumer spending.
Following this month’s slew of solid reports, Morgan Stanley raised its first-quarter gross domestic product growth estimate to an 8.1 per cent annualised rate from a 7.3 per cent pace. Growth forecasts for the quarter were boosted last week from as low as a 2.3 per cent pace. The economy grew at a 4.1 per cent rate in the fourth quarter.
— Reuters
Oman Observer is now on the WhatsApp channel. Click here
