By Victor Ochieng
A Commerce Department report shows that consumer purchases jumped higher in January, boosted by rise in earnings and inflation. It marked the highest recorded in eight months.
The month posted a 0.5% growth, higher than the 0.1% gain posted in December, the Friday report revealed. This was also 0.3% higher than the median forecast reported by a Bloomberg survey. The month also saw a 0.5% growth in income, a growth beyond expectations.
American spending has gone up as a result of steady job openings, significant drop in gasoline prices, and growing home values. According to the report, the preferred measure of inflation by the Federal Reserve went up at the highest rate since October 2014, demonstrating the kind of challenge U.S. central bankers are facing as they’re eyeing tighter monetary policy to tackle weak global markets.
“Income growth is solid, so we expect consumer spending to pick up this quarter,” said Michael Gapen, chief U.S. economist in New York at Barclays Plc. “The fear was that the consumer was slowing down at a more pronounced pace than people expected. Today’s numbers show the consumer doesn’t look to be rolling over by any means.”
In a separate report released on the same day by the Department of Commerce, the country’s gross domestic product grew at 1% in a revised, annualized rate, a rate faster than the 0.7% announced in advance. This is an indication of higher value of business inventories.
The Bloomberg survey had projected a decline in consumer spending of between 0.1% and 0.5% for the month of January.
The survey projected a 0.4% rise in median incomes after the country reported a 0.3% rise in the previous month. That gain marked the highest since June of last year. Adjustment made to the rate based on changes in price showed a 0.4% gain, which was also the highest since May of last year.
For the second month running, the disposable income rose by 0.4%, after making adjustments for inflation. The savings rate was 5.2%, while wages and salaries rose at the rate of 0.6% following a 0.2% rise in the previous month.
The American household outlays on services jumped at a rate of 0.3% after making adjustments for inflation. It’s, however, a challenge for the government to get estimates for categories such as legal services, health care, tourism and personal care services such as haircuts.
Broken down, the consumer spending on non-durable goods such as gasoline went up by 0.4%, while that of durable goods such as cars recorded a 1.1% rise.
The report also showed that the inflation measure preferred by Feds also shot up. The Feds have a 2% goal on inflation, a target set in April 2012.