US consumer spending up slightly, inflation at 4-year high

WASHINGTON – U.S. consumer spending rose at only a sluggish pace in January, even as signs of growing optimism about the economy have emerged.

Consumer spending increased 0.2 per cent in January, after a 0.5 per cent gain in December, the Commerce Department said Wednesday. Spending on services — from haircuts to health care — was flat, and Americans spent less on long-lasting goods such as autos and appliances.

Prices also rose in a sign that inflation has perked up a bit. A measure of inflation closely watched by the Federal Reserve rose 0.4 per cent in January and has increased 1.9 per cent in the past 12 months. That’s the biggest year-over-year gain in more than four years.

That nearly matches the Fed’s target of 2 per cent and may make a rate hike by the Fed more likely in the coming months.

Excluding the volatile food and energy categories, core prices rose 0.3 per cent in January and 1.7 per cent in the past 12 months.

Surveys of consumers have shown a burst of optimism since the presidential election, yet that has only intermittently translated into more spending. The Conference Board’s consumer confidence index jumped to a 15-year high in February after a modest dip in the previous month.

Measures of consumer health are important for growth because consumer spending drives about 70 per cent of economic activity.

Income growth accelerated slightly in January, the data showed, rising 0.4 per cent. That was slightly better than the previous two months.

Yet rising inflation is offsetting some of that gain and may slow spending in the coming months. Adjusted for taxes and price increases, Americans’ incomes actually slipped 0.2 per cent in January, the largest decline in more than three years

Wednesday’s figures suggest that the economy is still growing at a modest pace. Growth was just 1.9 per cent at an annual pace in the final three months of last year, the government said Tuesday. That was sharply lower than the 3.5 per cent increase in the third quarter.