Personal spending increased in the first two months of the year, according to a report released by the Commerce Department on Friday, with the two consecutive months of growth following six straight months of declines.
The report showed that personal spending rose 0.2 percent in February, with the increase coming in line with economist estimates. The modest increase followed an upwardly revised 1.0 percent increase in January, which compares to the previously reported 0.6 percent growth.
Along with the upward revision to spending growth in January, Chris Low, chief economist at FTN Financial, said consumption was also revised higher in November and December.
Low said, Due to the revisions, which meant a higher entry point into the quarter, and the fact that consumption was up in the first two months of the quarter, real consumer spending is likely to rise in the first quarter.
GDP will still be sharply lower in the first quarter, because inventories are overbuilt. But consumer spending growth is the essential first step toward an economic recovery, Low added.
At the same time, the Commerce Department said that personal income edged down 0.2 in February after a downwardly revised 0.2 percent increase in the previous month. Economists had been expecting a slightly more modest 0.1 percent decrease.
With personal spending rising and personal income falling, personal saving as a percentage of disposable personal income was 4.2 percent in February compared with 4.4 percent in January.
Peter Boockvar, equity strategist at Miller Tabak said, The savings rate, I believe, is headed to the 7-9 percent range over the next year, and every 1 percent increase is about $100 billion of less spending.
Thus, we may be only half way there in the deleveraging and saving process of the U.S. consumer, Boockvar said.
He added, We can talk about all the things the Fed, Treasury, Congress, and President want to do to 'save the economy,' but nothing will stop the inevitable deleveraging that needs to happen at the household level.
The report also showed that the Commerce Department's reading on consumer prices showed that the pace of price growth accelerated to an annual rate of 1.0 percent in February from 0.8 percent in the previous month.
Excluding food and energy prices, core consumer prices rose at an annual rate of 1.8 percent in February, up slightly from the 1.7 percent rate of growth seen in January.
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