US consumers stayed indoors February, and in much of the country, no one would blame them. Still, a disappointing showing for the largest segment of the US economy can’t be all chalked up to weather.
Consumer spending crept up just 0.1 percent in February, slightly more disappointing than the 0.2 percent uptick analysts were expecting, according to data released Monday by the Commerce Department. It was the first positive reading in two months; January and December both recorded a 0.2 percent slide.
When adjusted for inflation, it was the first overall decline in consumer spending in nearly a year, setting up a disappointing first quarter of the year after a very strong end to 2014. The results were “indicative of a very slow rate of gain in consumer spending in the quarter as a whole even if there is a rebound in March due to February (presumably) having been affected by extremely harsh weather in many areas,” MFR Inc. economist Josh Shapiro wrote in an e-mailed analysis.
He predicts that the weak results could lead to a pace of growth under 2 percent for gross domestic product. During the last quarter of 2014, the pace of GDP growth peaked at a much stronger 4.4 percent.
As with other disappointing data, weather certainly played a role. An unusually cold February in the Midwest and Northeast, combined with record-breaking snowfall totals in parts of New England, kept people away from shopping in retail stores and auto lots. According to data released earlier this month, retail sales fell 0.6 percent in February, and several automakers reported disappointing sales drops.
But the weather isn’t entirely to blame. For one, a booming job market has yet to translate to significant gains in hourly wages, which rose a paltry 0.1 percent, according to February’s jobs report.
Second, many consumers found themselves with a bit of extra cash thanks to a big drop in energy prices last year, and those savings are beginning to fade as fuel prices rise again. "Households are still receiving a boost from falling energy prices, but the main support to household spending power likely peaked in Q4 and should fade in the months ahead,” Barclays research analyst Michael Gapen wrote in an e-mailed report. Additionally, many consumers used their gasoline savings to boost their savings or pay down debt, pushing the Feburary savings rate up to 5.8 percent – its highest level since 2012.
There are signs future spending will take off, however. Personal income rose a better-than-expected 0.4 percent for the second month in a row, a trend expected to continue as the labor market surges along. Combined with better weather on the horizon, that could encourage consumers to ramp up spending in the coming months. “Income growth has been quite a bit stronger than spending, so there is still good reason to expect the consumer to do better in Q2 than in Q1, and to continue to improve in the second half provided the labor market recovery remains on track,” Mr. Shapiro writes. “The trend of real consumer spending has been considerably better than depicted by recent [monthly] data, which is another reason to suspect that neither the robust Q4 nor the weak Q1 will prove to be a representative depiction of underlying trends.”