US consumer spending up slightly by 0.1% in January

US consumer spending in January increased by 0.1%, according to the US Bureau of Economic Analysis (BEA). The statistics about consumer spending were mostly positive, but still fell below the 0.3% that economists expected.

US January consumer spending: key figures

Why didn’t US consumer spending meet expectations?

Consumer spending grew, but at a lower rate than expected. In January, the month-long government shutdown was the likely culprit that caused a slowdown in spending as shoppers exercised caution during the economically volatile time.

The PCE inflation gauge, a measurement of US consumption, fell by 0.1%. The decline is the largest since autumn 2016. While personal income rose by 0.2%, spending on goods fell by 0.2% as US consumers bought fewer big-ticket items like cars. Joel Naroff, chief economist at Naroff Economic Advisors, said that the corporate tax cuts passed in 2018 only had a short-term positive effect on the economy.

‘Unless some positive shock hits the economy, by the fall, we are likely to be back to where we were before the tax cut bill was passed,’ said Naroff.

How will the US consumer spending statistics affect the economy?

Before the statistics about sluggish growth in consumer spending, the Fed has decided to halt interest rate increases for the rest of the year. The lack of inflation growth may lead to more patience before implementing more rate hikes. Minneapolis Federal Reserve president, Neel Kashkari, noted that if the US consumer spending data is part of a larger trend, the Fed may start considering cutting interest rates.

‘I don’t know if the recent slowdown in data is a blip or if it’s a real economic trend. If we reach the conclusion that the economy is really slowing, then I think it would be appropriate to consider cutting interest rates,’ said Kashkari.