US consumers "tighten" spending for the first time in 2 years

US consumer spending fell for the first time in nearly two years in January, while the goods trade deficit hit a record high.

US consumer spending falls

US consumer spending fell for the first time in nearly two years in January, while the goods trade deficit hit a record high, suggesting the economy could grow weakly or even contract this quarter.

Data from the Commerce Department on February 28 also showed annual inflation eased slightly last month, but prices remained on a steady trend, with a steady monthly increase.

Consumer inflation expectations rose sharply in February. The Federal Reserve Bank of Atlanta revised down its forecast for first-quarter GDP growth, suggesting the economy could shrink at an annualized rate of 1.5%, instead of the 2.3% growth it previously forecast.

Spending on goods fell 1.2%, with automobiles, recreational goods, home furnishings, clothing, footwear, and food and beverages seeing the biggest declines. Illustration photo

Financial markets now expect the Federal Reserve to cut interest rates again in June after pausing in January to allow time to assess the economic impact of current policies.

" The combination of steady inflation and growth concerns creates a dilemma for the Federal Reserve's monetary policy," said Olu Sonola, head of US economic research at credit rating agency Fitch Ratings .

Consumer spending, which accounts for more than two-thirds of US economic activity, fell 0.2% in January, according to the Commerce Department's Bureau of Economic Analysis. It was the first decline since March 2023 and the largest decline in nearly four years. This came after December 2024 data was revised up to 0.8%, instead of the initially reported 0.7% increase.

Economists forecast consumer spending would rise 0.1%. Unusually cold temperatures and snowstorms that blanketed much of the country may have hurt spending, along with wildfires ravaging parts of Los Angeles.

Spending on goods fell 1.2%, with automobiles, recreational goods, household furnishings, clothing and footwear, and food and beverages seeing the biggest declines. Spending on services, meanwhile, rose 0.3%, driven by spending on housing, utilities, food and beverage services. The increase was partly offset by a decline in nonprofit spending, which economists attributed to deep cuts at the U.S. Agency for International Development (USAID).

The agency has become the biggest victim of the unprecedented campaign by tech billionaire Elon Musk's Department of Government Efficiency (DOGE), an organization created under US President Donald Trump with the goal of cutting spending and shrinking the size of the federal government.

“Despite being called the Agency for International Development, USAID spends a lot of money on domestic operations,” said Chris Low, chief economist at financial services research and consulting firm FHN Financial.

Adjusted for inflation, US consumer spending fell 0.5% at the start of the year, the biggest decline since February 2021, reversing a 0.5% gain in December. This sharp drop in real spending followed a decline in home construction last month.

A separate report from the U.S. Commerce Department's Census Bureau showed the goods trade deficit jumped 25.6 percent to $153.3 billion last month, its highest ever, as imports surged 11.9 percent.

The economy grew at a 2.3% rate in the fourth quarter of last year, driven largely by consumer spending.

Spending, however, was supported by a strong labor market, which helped keep household incomes high. Personal income rose 0.9%, largely due to cost-of-living adjustments for Social Security recipients. Wages also rose 0.4%.

With income rising faster than spending, the savings rate rose to a seven-month high of 4.6%, up from 3.5% in December 2024.

Stocks on Wall Street were mixed. The dollar was steady against a basket of currencies. US Treasury yields fell.

Inflation is mixed.

Inflation data was mixed. The personal consumption expenditures (PCE) index rose 0.3% in January, matching the increase in December 2024 and in line with economists' forecasts.

Goods prices rose 0.5%, mainly due to higher auto and gasoline costs. Services prices rose 0.2%, with a sharp increase in the cost of recreation services partially offsetting a decline in health care costs.

In the 12 months through January 2025, the PCE index increased 2.5%, down slightly from the 2.6% increase in December.

Stripping out volatile items like food and energy, the core PCE index rose 0.3% last month, after rising 0.2% in December. Over the 12 months through January, core inflation rose 2.6%, down from a 2.9% increase in December.

The Federal Reserve (Fed) tracks the PCE index to help it reach its 2% inflation target. The US central bank paused interest rate cuts in January, keeping its benchmark overnight rate at 4.25%-4.50%, after cutting it by 100 basis points since September, when it began its policy easing cycle.

Consumer spending, which accounts for more than two-thirds of US economic activity, fell 0.2% in January, according to the US Department of Commerce's Bureau of Economic Analysis. This was the first decline since March 2023 and the largest decline in nearly four years. This came after December 2024 data was revised up to 0.8%, instead of the initially reported 0.7% increase.

Source: https://congthuong.vn/nguoi-tieu-dung-my-that-chi-tieu-lan-dau-sau-2-nam-376322.html