The Economy

Consumer Spending Number Underwhelms

Paying less at the pump did not cause consumers to spend more in other areas last month.
Matthew HellerMarch 31, 2015

Consumer spending rose only 0.1% in February, according to the U.S. Commerce Department, as falling gasoline prices apparently failed to fuel a shopping spree by consumers.

The uptick last month followed two months of declines of 0.2%. But economists had forecast a gain of 0.2%, predicting that consumers would spend the windfall from cheaper gas prices.

Reuters said the February numbers are “the latest sign that the economy hit a soft patch in the first quarter” and the slowdown “could prompt the Federal Reserve to delay raising interest rates until later this year.”

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

“We expect spending activity to rebound meaningfully in the coming months as the weather setback dissipates, but the very weak tone in the data will likely continue to temper the impulse at the Fed to tightening policy in the near-term,” Millan Mulraine, deputy chief economist at TD Securities in New York, told Reuters.

Consumer spending accounts for more than two-thirds of economic activity in the United States. Adjusted for inflation, spending dipped 0.1% in February, the weakest reading since April 2014.

The Commerce Department also said Monday that disposable personal incomes rose 0.4% in February, after rising 0.5% in January and 0.3% in December.

According to Reuters, consumer spending has lost momentum due to bad winter weather and because “households appear to have pocketed the bulk of their savings from lower gasoline prices or used the money to pay down debt.”

“Despite some headlines to the contrary, it appears that Americans are showing signs of fiscal responsibility. They are saving more,” CNN said, noting that the savings rate rose to 5.8% in February — the highest level since late 2012.

Economists at Barclay’s predicted Monday that consumer spending will rebound in the second quarter and the savings rate will fall. But they cut their forecast for first-quarter GDP growth to 1% from 1.2%.

In a separate report Monday, the National Association of Realtors said its pending home sales index, based on signed contracts, rose 3.1% in February to its highest level since June 2013, indicating the spring buying season could open strong after sluggish home sales for much of the winter.

However, the housing market still has an affordability problem. Prices have increased much faster than wages. The Standard & Poor’s/Case-Shiller 20-city home price index rose 4.6% in January, up from growth of 4.4% in December 2014.

In addition, when benchmark interest rates start to rise, perhaps later this year, new buyers may be facing higher monthly mortgage payments.