Americans Spend Big in January
Consumer spending in the U.S. climbed more than forecast in January, reflecting the biggest increase in services in over 12 years as Americans began to enroll for the Obama administration's health care program.
Household purchases, which account for about 70 percent of the economy, rose 0.4 percent, after a 0.1 percent gain the prior month that was smaller than previously estimated, Commerce Department figures showed Monday in Washington. The median forecast of 76 economists in a Bloomberg survey called for a 0.1 percent rise. Incomes advanced 0.3 percent.
Outlays on services were boosted by $29 billion at an annual rate in January based on estimates of Medicaid benefits and enrollments in the Affordable Care Act insurance exchanges, the Commerce Department said. Improvement in hiring and rising wealth underpinned by housing and stock market gains will keep providing consumers with the means to spend on a broader swathe of goods and services that will boost economic growth.
"Consumer spending had OK momentum" in January, Brian Jones, senior U.S. economist at Societe Generale in New York, said before the report. "We expect to see better job growth in the spring. More people with jobs means more money to spend."
Stock index futures held earlier losses after the report. The contract on the Standard & Poor's 500 index (^GPSC) maturing in March dropped 0.8 percent to 1,843.5 at 9:14 a.m. in New York as Russia's threat to invade Ukraine sent investors searching for safer havens.
Projections for spending in the Bloomberg survey ranged from a 0.1 percent drop to a gain of 0.5 percent. The December reading was previously reported as an increase of 0.4 percent.
The Bloomberg survey median called for incomes to rise 0.2 percent.
Monday's figures showed that adjusting consumer spending for inflation, which generates the figures used to calculate gross domestic product, purchases rose 0.3 percent after a 0.1 percent decrease the previous month.
Spending on durable goods, including automobiles, decreased 0.2 percent after adjusting for inflation following a 2.2 percent drop in December. Purchases of non-durable goods, which include gasoline, declined 0.7 percent.
Household outlays on services advanced 0.8 percent after adjusting for inflation. Before eliminating the influence of prices, they climbed 0.9 percent, the biggest gain since October 2001. In addition to health care, the category also includes utilities, tourism, legal help and personal care items such as haircuts. This makes it typically difficult for the government to estimate accurately in the preliminary report.
Monday's figures also showed the core price measure, which excludes food and fuel, rose 0.1 percent in January from the prior month and was up 1.1 percent from January 2013.
Retailers, coming off a tough holiday season marked by steep discounts, have been hard hit as winter storms disrupted shopping in January. With results in from 62 of 122 retail chains, the industry has posted its first drop in quarterly profit since the economic contraction that ended in 2009, according to Retail Metrics. Revenue also rose at the lowest rate since that year, the research firm found.
Businesses predicting a rebound include Target (TGT), which said sales have shown signs of improvement in February, and Macy's (M), which anticipated that spring would bring a sales recovery after frigid weather forced hundreds of store closings.
Home Depot (HD), the largest U.S. home-renovations chain, and Lowe's (LOW), the second-largest, expect continuing gains in demand spurred by the real-estate rebound.
"Some of the recent housing and jobs data has softened a little bit, but we still think the consumer is going to be there and 2014 is going to be a great year," Robert Niblock, chief executive officer of Lowe's, said in an interview last week.
Disposable income, or the money left over after taxes, %VIRTUAL-article-sponsoredlinks%rose 0.3 percent after adjusting for inflation. It dropped 0.2 percent in the prior month and was up 2.8 percent from January 2013.
The saving rate was 4.3 percent in January, unchanged from the prior month. Wages and salaries increased 0.2 percent after dropping 0.1 percent in December.
Household purchases toward the end of last year were less robust once the Commerce Department issued revisions Friday. Consumer spending climbed at a 2.6 percent annualized pace in the final three months of 2013, slower than the prior estimate though still the best performance since early 2012. Fourth-quarter gross domestic product grew at a 2.4 percent rate, also weaker than the prior estimate.
Less fiscal restraint this year and further progress in the job market probably will boost GDP once the effect of unusually harsh weather dissipates.
Federal Reserve Chair Janet Yellen last week said the central bank is likely to keep trimming asset purchases, even as it monitors recent reports to "try to get a firmer handle on exactly how much of that set of soft data can be explained by weather and what portion, if any, is due to softer outlook."
Policy makers anticipate that "economic activity and employment will expand at a moderate pace this year," she said to the Senate Banking Committee on Thursday.
Payrolls climbed by 150,000 in January after a 113,000 gain a month earlier, according to the Bloomberg survey median ahead of Labor Department data due Friday. The jobless rate held at a five-year low of 6.6 percent, economists predicted.