Cold weather hinders US consumer spending, inflation is weak – 3/26/2021

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By Lucia Mutikani

WASHINGTON (Reuters) – Consumer spending in the United States fell to the highest rate in ten months in February, as the cold weather affected many parts of the country and weakened the pace of a second round of stimulus investigations, though the decline declined. is. It should be temporary.

The Commerce Department said on Friday that consumer spending, which accounts for more than two-thirds of US economic activity, fell by 1.0% last month after falling 3.4% in January.

This was the biggest decline since April 2020, when the economy was recovering from the closure of non-essential establishments, such as restaurants, to slow the spread of the Kovid-19 transition.

Personal income fell 7.1% after jumping 10.1% in January. Economists forecast by Reuters forecast a 0.7% drop in consumer spending and a 7.3% drop in income in February.

Exceptionally severe weather in the United States in late February, including severe winter storms in Texas and other parts of the densely populated southern parts, home construction, factory production, and orders and shipments of products manufactured during the month .

But in the warmer March season, activity is expected to increase due to the White House’s 1.9 trillion rescue package and an increase in coronovirus vaccination.

The huge pandemic aid package approved this month is sending an additional check of $ 1,400 to eligible families and expanding the government’s aid network to the unemployed by 6 September. The US government reported on Thursday that new claims for unemployment benefits had fallen to a one-year low in the previous week.

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Last month, the decline in consumer spending was broad-based, with a sharp decline in the purchase of pharmaceuticals and recreational products. Spending on goods fell 3.0% after rising 8.4% in January.

Spending on services increased 0.1% after rising 0.9% in January. Consumers spent more on public services and health care in hospitals, but reduced out-of-home meals.

With weak demand, inflation fell last month. But prices are expected to pick up in March due to the widely reopening of the economy and the exclusion of last year’s weak readings from calculations, as well as highly accommodative fiscal and monetary policy.

The PCE index, excluding volatile food and energy components, rose 0.1% after rising 0.2% in January. In the 12-month period until February, the so-called PCE core jumped 1.4%, after rising 1.5% in January. The core of the PCE index is the Fed’s preferred inflation measure with a 2% target, an above average.

When adjusted for inflation after a 3.0% jump in January, consumer spending fell 1.2% in the previous month. The decline in so-called real consumer spending did not dampen the impetus for economic growth in the first quarter, with a sudden reversal expected in the coming months.

The North American economy is forecast to grow by 7.5% this quarter, after expanding 4.3% in the fourth quarter of last year. This year’s growth could reach 7%, the fastest since 1984. The United States economy contracted 3.5% in 2020, its worst performance in 74 years.

There was a drop in income last month due to a decrease in government transfers. Wages were stable. The savings rate fell to 13.6%, from 19.8% in January.

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(Reportaz de Lucia Muticani)

About the author: Sarah Gracie

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