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Big spenders expected to power economy in 2nd quarter

By The Associated Press
Saturday, March 29, 2014, 12:01 a.m.
 

WASHINGTON — Americans barely increased their spending in February from a weak January performance, strong evidence that the severe winter will hold back the economy in the first quarter.

Consumer spending, which increased 0.2 percent in January, rose 0.3 percent in February, the Commerce Department reported on Friday. The January performance was cut in half from an initial estimate of 0.4 percent.

For February, spending on autos and other durable goods actually fell and much of the small gain reflected higher utility payments to pay heating costs.

Analysts said consumer spending, which accounts for 70 percent of economic activity, has slowed significantly in the January-March quarter and will hold back overall economic growth. But they are looking for a rebound in the spring as the weather improves.

Based on the weak February performance and the downward revision to January, economists at Barclays said they were trimming their forecast for overall economic growth in the first quarter to a 2 percent rate, down from a previous estimate of 2.4 percent.

Analysts believe a second quarter rebound will be driven by pent-up demand for the purchase of items such as cars that were put off during the winter storms.

“We expect consumer spending to be significantly stronger in the second quarter,” said Chris G. Christopher, director of consumer economics at Global Insight. “Auto sales are expected to heat up in March and for the remainder of the year.”

The report showed that after-tax income was up 0.3 percent in February, the same as in January.

The saving rate edged up slightly to 4.3 percent of after-tax income compared to January, when the saving rate was 4.2 percent.

The report showed that inflation remains very low. An inflation gauge tied to consumer spending was up just 0.9 percent in February compared to a year ago, significantly below the 2 percent target set by the Federal Reserve.

The Fed last week approved a reduction in its monthly bond buying, which the central bank is doing to lower long-term interest rates and boost economic growth. But some economists are concerned that if the Fed removes its support too quickly, it could undermine efforts to get prices rising closer to the target.

Economists expect that spending will rebound in the April-June period, helping to boost overall economic growth to its strongest pace in nearly a decade.

Many analysts foresee the economy growing 3 percent for the year, after a weak first quarter. It would be the most robust annual expansion since 2005, two years before the Great Recession began.

 

 
 


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