WASHINGTON () – U.S. spending rose the most in the last seven months in January, as the government donated more money to help low-income households pandemic, and new COVID-19 infections fell, giving the economy faster growth in the first quarter .
Despite a strong recovery in consumer spending reported by the Department of Commerce on Friday, price pressures have subsided. Inflation is being closely monitored amid concerns from some quarters that President Joe Biden’s $ 1.9 trillion COVID-19 recovery proposal could lead to overheating of the economy.
The plan, being considered by the U.S. Congress, will be on top of a nearly $ 900 billion rescue package the government proved in late December. Federal Reserve Chairman Jerome Powell downplayed fears of inflation, citing three decades of lower and stable prices.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, jumped 2.4% last month. It was the biggest gain since last June and ended a two-month decline. Personal income rose 10%, the biggest increase since the last riot, after rising 0.6% in December.
Consumers bought motor vehicles, recreational products, food and drink. They also increased spending on services such as hotel accommodation and restaurants, as well as doctor visits.
Economists surveyed forecast an increase in consumer spending in January by 2.5% and revenue by 9.5%.
When adjusted for inflation, consumer spending rose 2% last month after falling 0.8% in December.
Further gains in consumer spending are likely, although winter storms, which wreaked havoc in Texas and other parts of the densely populated South this month, could slow the momentum. Daily cases of coronavirus and hospitalization have dropped to the level last seen before Thanksgiving and the Christmas holidays, while the pace of vaccination is rising.
The recent stimulus package included $ 600 checks mostly for low- and middle-income Americans. The package also expanded government weekly unemployment subsidies, as well as benefits for millions of people who do not qualify for state unemployment programs, as well as those who have exhausted their six months. These benefits expire in mid-March.
If it is proven that the plan of the Baiden administration will send an additional 1,400 US dollars to checks to qualified households and expand the government’s safety net for the unemployed.
Economists last week boosted their first-quarter GDP growth estimates to as much as 6% year-on-year, from just 2.3% after January retail data and indications that the White House’s massive stimulus package could be fully proven. Growth estimates could increase even more after consumer spending reports.
U.S. stocks needed to open more. The dollar rose against a basket of currencies. U.S. Treasury yields have fallen.
Part of the incentive funds sent to households was saved. The savings rate jumped to 20.5% last month from 13.4% in December.
Inflation was benign. The personal consumption expenditure index (PCE), excluding the volatile food and energy component, rose 0.3% after a similar gain in December. In the 12 months to January, the so-called baseline PCE price index rose 1.5% after rising 1.4% in December.
The Fed’s core PCE price index is the preferred inflation measure for the 2% target, a flexible average.
Powell told lawmakers this week that the U.S. central bank would keep interest rates low and continue to pump money into the economy by buying bonds “at least at the current pace until we make significant further progress toward our targets (maximum employment and inflation).”