US consumer spending barely rose in January after economic growth was weaker than previously reported at the end of last year.
Inflation-adjusted consumer spending increased 0.1% from the prior month, according to Bureau of Economic Analysis data out Friday. The so-called core personal consumption expenditures price index, which excludes food and energy items and is favored by the Federal Reserve, rose a firm 0.4%.
Another report from the BEA showed the US economy expanded at a 0.7% annualized rate in the fourth quarter — when the government experienced a record-long shutdown — compared to an initial estimate of 1.4%. Consumer, business and government spending, as well as exports were marked down, but a gauge of underlying demand was relatively solid.
The economy is in a different place now, as the war in Iran has boosted energy prices and may take a toll on household sentiment.
Tax refunds, as well as firm wage growth, should lend some support to consumers' finances in the months ahead. Still, economists see a risk to spending going forward given the threat of greater inflation from the conflict and a fragile job market.
“Health care, housing and insurance were top categories for spending in January,” Heather Long, chief economist at Navy Federal Credit Union, said in a note. “Of course, all of this is ancient history now.”
While Fed officials are widely expected to leave interest rates unchanged at their policy meeting next week, a sustained pickup in inflationary pressures could delay a resumption of rate cuts at a time when President Donald Trump continues to demand them.
Treasuries and stock futures rallied after the reports.
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