Disappointing Recent US Data Cue Weaker Q1 Expansion
Dino Lirios | | Mar 03, 2015 09:02 AM EST |
(Photo : Reuters)
US consumer spending, which accounts for over two-thirds of the nation's economic activity, slipped for a second time in a row in January to 0.2 percent, after faltering 0.3 percent in December.
The decline was attributed to lower gasoline prices, dampening service station and big-ticket item sales. Households are noted to have made purchase cut backs, parking their savings from lower-priced gasoline in banks.
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"Growth is slowing in the first quarter after a strong second half of last year. All the gas savings are ending up at the bank rather than being spent," Thomas Costerg, an economist at Standard Chartered Bank in New York.
Real consumer spending, meanwhile, inched up 0.3 percent, with cheaper gasoline prices muting inflationary pressures.
However, the climb does not impress economists who also noted that falling factory activity for February and construction spending in the month likely moderated economic growth for the first quarter, triggering a revised economic forecast.
For instance, Morgan Stanley slashed its first-quarter growth estimate to a 2.3 percent, while Macroeconomic Advisers dropped their growth target to 2.1 percent from 2.3 percent.
"It (consumer spending report) raises a yellow flag regarding the pace of consumption in the first quarter and the pace of growth," Anthony Karydakis, chief economic strategist at Miller Tabak in New York.
Other worrying data to show a softer US economic recovery are a price index for consumer spending edging up 0.2 percent last year, the slowest since October 2009; the personal consumption expenditure (PCE) price index marginally growing 0.8 percent in December last year and core PCE meekly adding 1.3 percent in 2014.
US Federal Reserve Chair Janet Yellen stated during a meeting in congress last week that the central bank policy setting group "needs to be reasonably confident that over the medium term inflation will move up towards its 2 percent objective" before the monetary board can hike interest rates.
"The latest inflation report offers no reason to assume inflation has stabilized, let alone is reversing course back toward the committee's longer-term target...continued pressure on prices will further delay Fed action," Lindsey Piegza, chief economist at Sterne Agee in Chicago said.
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