The Economy

Consumer Spending Rebounds With 2.4% Gain

“Government checks did their work, as both income and spending increased dramatically in January."
Matthew HellerFebruary 26, 2021
Consumer Spending Rebounds With 2.4% Gain

Consumer spending rebounded strongly in January after two straight monthly declines, getting a boost from pandemic relief checks that shored up the economy.

The Commerce Department reported Friday that consumer spending, which accounts for more than two-thirds of U.S. economic activity, jumped 2.4% last month. It was the first gain since October and the largest since June.

Personal income surged 10% in January, the largest increase since last April when the government disbursed the first round of stimulus checks. Economists polled by Reuters had forecast consumer spending rebounding 2.5% and income accelerating 9.5%.

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.

“Government checks did their work, as both income and spending increased dramatically in January following the stimulus package passed in late December,” said Robert Frick, corporate economist at Navy Federal Credit Union.

“The December [relief] package will easily support spending this month as well, and if another stimulus package is passed as expected, high income and spending will continue through the spring,” he added.

Washington approved $600 relief checks and raised unemployment benefits in December to help support the economy after a record spike in coronavirus cases at the end of last year.

Consumers bought motor vehicles, recreation goods, food, and beverages in January and also boosted spending on services such as hotel accommodations and restaurants, as well as doctor visits.

“Further gains in consumer spending are likely, though winter storms, which wreaked havoc in Texas and other parts of the densely populated South this month, could slow momentum,” Reuters said.

According to MarketWatch, the economy may benefit from a rapid increase in coronavirus vaccinations, which would allow “hard-press businesses such as restaurants, hotels, and amusement parks to serve more customers and bring back employees.”

The Commerce Department also said the Federal Reserve’s preferred measure of inflation rose 0.3% last month. The PCE price index has increased 1.5% in the past year — up from 1.3% in the prior month — and is moving closer to the Fed’s 2% target.

“Many economists predict inflation will surpass 2% once the pandemic fades and the U.S. recovers, but Fed officials contend any increase will be mild and temporary,” according to MarketWatch.