Growth in consumer spending, a key driver of the economy, slowed sharply in February as Omicron’s Covid-19 surge eased and inflation picked up amid the crisis. Russian invasion of Ukraine.
US households increased their shipments at a seasonally adjusted 0.2% pace in February from a month earlier, compared to a revised rate of 2.7% in January, when spending rebounded from an Omicron-related decline in December, the Commerce Department said Thursday.
Household incomes rose in February as the unemployment rate fell and employers rushed to hire new workers. Personal income rose 0.5% in February from the previous month, a recovery after being nearly flat in January, but inflation rose faster. After-tax income, adjusted for inflation, fell for the seventh consecutive month in February to the lowest level since March 2020, the Commerce Department said.
The data adds to a picture of the economy growing as buyers benefit from a strong job market and rising wages but see those gains eroded by rising inflation, economists said. .
Inflation “will be an even bigger drag in March as energy prices spike in the wake of Russia’s invasion of Ukraine,” said Gus Faucher, chief economist at PNC Financial Services Group..
Consumer prices rose 0.6% on the month and 6.4% on the year, a new 40-year high as measured by the department’s personal consumption expenditure price index, the indicator favorite of the Federal Reserve. Annual core PCE inflation, which excludes food and energy price volatility, hit 5.4% in February.
In February, the wave of Covid-19 infections of the Omicron variant waned, leading consumers to spend more on services like restaurants and travel. Spending on services rose 0.9% in February, the highest since last July, while spending on goods fell 1%, mainly due to lower spending on vehicles as prices continued to rise and supply chain issues affecting availability.
Spending on vehicles and parts fell 4% in February as automakers struggled to secure manufacturing components like semiconductors due to pandemic supply issues, analysts said. Nevertheless, pent-up demand for goods currently in short supply should support growth in household spending over the next year as supply chains normalize and availability increases.
The shift toward service spending shows consumers are rebalancing after Omicron hurt demand for restaurant dining and entertainment and forced some Americans to cancel travel plans.
Travel for both leisure and business rebounded faster than expected from Omicron, airline executives said. Major U.S. airlines said earlier in March that their first-quarter 2022 revenues would likely be at the upper end of what they had expected at the start of the year, if not better.
Kim Cook, owner of Love to Travel, a travel agency focused on tropical destinations in Overland Park, Kansas, said her customers don’t let high airfare and hotel prices deter them from booking trips, especially with large groups of friends. and the family.
“They say, ‘I know it’s going to be expensive, but we haven’t been anywhere in two years, we really want to do this,'” Ms Cook said. money to burn”.
New claims for unemployment benefits in the United States rose slightly last week but remained near historic lows, indicating a strong labor market in which employers are retaining workers amid strong demand.
Consumers are sending mixed signals about how they feel about the direction of the economy. The Conference Board’s Consumer Confidence Index for March showed that consumers are optimistic about the Covid situation and the job market, but are concerned about the future impacts of the Russian invasion of Ukraine on the inflation. The invasion drove up energy and commodity prices, worsening supply chains and commodity shortages that were already exacerbating price pressures.
“The outlook for the future is certainly not as rosy as it used to be,” said Alex Lin, economist for Bank of America..
“We expect growth to slow and consumer spending to slow with it.”
While companies mostly say they can pass on price increases, they warn there are limits to what consumers will be willing to tolerate before high prices start to reduce demand.
Inflation and shortages have already pushed consumers to switch from more expensive brands to cheaper options, according to survey data. About 70% of U.S. shoppers said they purchased a new or different brand than they had before the pandemic, according to a survey conducted from May 2020 to August 2021 by private label consultancy Daymon Worldwide Inc.
“Prices will force the consumer to change,” said Lindsey Piegza, chief economist at Stifel Financial Corp.
“When you talk about disrupting two economies that play a major role in energy and agriculture, that will affect basic consumer prices.”
Meghna Marathe, a 29-year-old consultant in Jersey City, NJ, is expecting her first child in August with her husband. She said impending parenthood has made her much more cost-conscious than she usually was, a change that has only been exacerbated by inflated prices.
“I’ve always been able to, for the most part, not hesitate to buy something,” she said. Now, when shopping for the baby, she is more cost conscious and focuses on what the baby needs, rather than what might be “just fun to have”.
“A lot of moms-to-be go to the stores and see all the cute things they can buy for nursery. I’ve been window shopping, but I haven’t bought any of that,” she said. declared.
Write to Gabriel T. Rubin at [email protected]
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