In January, US consumer spending rose by the greatest in nearly two years despite wage growth and rising inflation, prompting financial market concerns that the Federal Reserve may raise interest rates through July. Friday’s US Department of Commerce data showed the economy was far from a recession. That followed January job growth and the lowest unemployment rate in 53 years earlier this month. “Clearly, tighter monetary policy has yet to fully impact consumers and shows that the Fed has more work to do in slowing aggregate demand,” said Jeffrey Roach, chief economist at LPL Financial in Charlotte, North Carolina. “This report suggests the Fed will hike into summer.”
In month, American consumer expenditure rose 1.8 percent. The biggest gain since March 2021. December expenditure was revised up to 0.1 percent from 0.2 percent. Reporters economists predicted 1.3 percent consumer spending growth. Consumer expenditure rose 1.1 percent, the most since March 2021, after inflation. November and December “real consumer spending” fell. Automobiles, furniture, and equipment sales increased. Dining out and recreation cost more. Expenditure was likely driven by a 0.9 percent increase in wages and salaries and an 8.7 percent cost of living adjustment, the most since 1981, for more than 65 million Social Security recipients, which increased income. It was likely aided by early data issues. Economists predict February payback. The robust performance boosted consumer spending in the first quarter. In the fourth quarter, consumer spending fell, especially in the latter two months of 2022.
‘Slow cession’
Moody’s Analytics predicted a “slow cession” in which growth stalls but never reverses. American stocks opened lower. Dollar climbed versus a basket of currencies. Treasuries dropped. The January employment report shook financial markets. Financial markets forecast two more 25-basis-point Fed rate hikes in March and May, and another in June. Since March, the US central bank has lifted its policy rate by 450 basis points from near zero to 4.5–4.75%.
After rising 0.2 percent in December, the personal consumption expenditures (PCE) price index rose 0.6 percent last month, the highest increase since June 2022. The 12-month PCE price index rose 5.4 percent after climbing 5.3 percent in December. The PCE price index rose 0.6 percent excluding volatile food and energy components. The highest growth since August 2022 follows a 0.4 percent advance in December. The “core PCE price index” rose 4.7 percent in January after rising 4.6 percent in December. PCE pricing indices guide Fed monetary policy. Thursday’s government report showed that fourth-quarter inflation rose faster than expected, largely due to this month’s consumer and producer pricing data increases. Several experts predicted a slow, lumpy disinflation. Wage increases drove 0.6 percent personal income growth. After inflation, family income rose 1.4 percent, the most since March 2021. Consumers increased spending and savings. From 4.5 percent in December, the saving rate jumped to 4.7 percent, a year high.
