U.S. consumer spending surges in January; inflation heats up

Baku, February 25 AZERTAC

U.S. consumer spending increased by the most in nearly two years in January amid a surge in wage gains, while inflation accelerated, adding to financial market fears that the Federal Reserve could continue raising interest rates through summer, Reuters reported.

The report from the Commerce Department on Friday was the latest indication that the economy was nowhere near a much- dreaded recession. It joined data earlier this month showing robust job growth in January and the lowest unemployment rate in more than 53 years.

"Clearly, tighter monetary policy has yet to fully impact consumers and shows that the Fed has more work to do in slowing down aggregate demand," said Jeffrey Roach, chief economist at LPL Financial in Charlotte, North Carolina. "This report means that the Fed will likely continue hiking into the summer."

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, shot up 1.8% last month. That was the largest increase since March 2021. Data for December was revised higher to show spending dipping 0.1% instead falling 0.2% as previously reported. Economists polled by Reuters had forecast consumer spending rebounding 1.3%.

When adjusted for inflation, consumer spending increased 1.1%, also the biggest gain since March 2021. The so-called real consumer spending had declined in November and December.

Consumers boosted purchases of long-lasting manufactured goods like motor vehicles, household furnishings and equipment. They also spent more on dining out and recreation.

Spending was likely driven by a 0.9% jump in wages and salaries as well as a 8.7% cost of living adjustment, the biggest increase since 1981, for more than 65 million Social Security beneficiaries, which boosted income.

It was also probably flattered by difficulties ironing out seasonal fluctuations from the data at the start of the year. Some economists expect payback in February.

Nevertheless, the strong performance put consumer spending on a higher growth path at the start of the first quarter. Consumer spending slowed in the fourth quarter, with most of the loss in momentum happening in the last two months of 2022.