US consumer spending and income decline, but a rebound is expected | Business and economic news

Consumer spending and personal income are expected to rebound in March as Americans receive stimulus checks.

Consumer spending and personal income both fell sharply in February, as severe winter storms disrupted shopping in many parts of the United States and the government completed the distribution of $ 600 in relief.

However, both are expected to rebound strongly this month, as more people are vaccinated against the coronavirus – and as they are aware of a second round of pandemic aid, this time in larger individual payments of 1,400. dollars.

Consumer spending fell 1% last month, the Commerce Department reported on Friday, the biggest drop since last April, when spending fell 12.4% as the country was gripped by the global pandemic of coronavirus.

Revenue fell a record 7.1% last month, a time when the government made the bulk of the 600 payments of December’s $ 900 billion relief bill.

Temperatures are rising with the onset of spring in the United States, which means consumers will be increasingly active, and the Treasury Department reported this week that it had made 127 million payments totaling $ 325 billion. in the first two weeks after President Joe Biden signed the last one. an economic support program totaling $ 1.9 trillion.

“With $ 1,400 stimulus checks entering bank accounts, health conditions improving and the weather warming, American consumers look set for a spring bloom,” said Gregory Daco, economist Chief American at Oxford Economics.

Consumer spending, which is closely watched as it accounts for 70% of US economic activity, jumped 3.4% in January. Personal income, which is fueling future spending, jumped 10.1% in the same month the United States distributed $ 600 in checks.

All the government support and the Federal Reserve’s extremely low interest rate policies have raised concerns that inflation will take off as the economy opens up. An expenditure-linked price gauge tracked by Fed officials showed a 1.6% increase in the 12 months ending in February, down from 1.4% in January.

However, much of this increase reflects rising energy costs. Core inflation, by this measure, rose 1.4% for the 12 months ending in February, down from a 1.5% gain in January. Inflation readings remain below the Fed’s 2 percent target for annual price increases, and Fed Chairman Jerome Powell this week reiterated that any rise in inflation this year should be temporary .

In addition to the push for another round of stimulus checks, economists believe spending will be supported this year by the build-up of household savings over the past year as consumers have stayed on the sidelines. away from restaurants and canceling their vacations. The government reported that personal savings amounted to $ 2.41 trillion, with a savings rate – saving as a percentage of after-tax income – of 13.6%.

The overall economy, measured by gross domestic product, grew at an annual rate of 4.3% in the fourth quarter, capping a year when gross domestic product (GDP) plunged 3.5%, the biggest decline annual for over seven decades.

Mark Zandi, chief economist at Moody’s Analytics, said he expects GDP, fueled by strong consumer spending, to grow 5.1% annually this quarter, followed by quarterly growth rates that will continue to rise. for the rest of the year, giving the economy 6% growth. for the whole of 2021, the best performance in 37 years.

“It will be a booming year,” Zandi said. “The economy will be helped by the end of the pandemic that will make people comfortable to go out, with massive support from the federal government and pent-up consumer demand.

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