US Consumer Spending up Solid 0.5 Percent in January

Consumer sentiment fell less than economists forecast in February, according to the final revision of the University of Michigan’s index. The central bank lifted the short-term cost of borrowing in December for the first time since the Great Recession, but the Fed has gotten cold feet again as the economic outlook has gotten murkier.

Personal spending, which measures outlays on everything from smart phones to doctor visits, rose 0.5% in January from the prior month, the Commerce Department said on Friday.

The personal savings rate – personal savings as a percentage of personal income – was 5.2 percent, also the same as the December rate.

December’s personal income increased by 0.3% ($45.6 billion) and spending increased by 0.1% ($11.6 billion), based on revised figures. US stocks were trading higher.

Real spending, which is adjusted to remove price changes, increased by 0.4 percent in January on the heels of a 0.2 percent uptick in December.

Goldman Sachs Group Inc. analysts wrote in a Thursday note they expect gains in another inflation metric, the consumer-price index, to average 1.3 percent this year, and to accelerate to 2.4 percent in 2017. Expectations were for the report to show a 0.4% increase in income during January, while spending was set to rise 0.3%.

With the PCE price index rising 0.3% on the monthly reading, the annual reading of 1.7% is getting ever closer to the Federal Reserve’s 2.0% to 2.5% inflation target.

“It has to make the Fed more confident in their course of action going forward”, said Omair Sharif, rate sales strategist at SG Americas Securities in NY.

The economy got off to a good start in the new year.

Financial markets see nearly no chance of a rate hike in March and low probabilities of further monetary policy tightening for the rest of the year. It was slightly down from January’s reading of 92.0.

The personal saving rate was 5.2% in January. That compared with a 0.1% increase the previous month.

The slower spending contributed to weaker growth in the overall economy in the fourth quarter.

Another report from the Department of Commerce, issued on Friday as well, showed that the gross domestic product had expanded at a revised annualized rate of 1% during the 2015 fourth quarter, faster than reported earlier of an increase of 0.7%.

US economic growth slowed in the fourth quarter, but not as sharply as initially thought, with businesses less aggressive in their efforts to reduce unwanted inventory, which could hurt output in the first three months of 2016.

Businesses accumulated $81.7 billion worth of inventory in the fourth quarter rather than the $68.6 billion reported last month.