UPDATED -- Consumers opened their wallets more in January than they did in December, according to new figures from the U.S. Commerce Department.
Economic Watch: Consumer Spending and Other Indicators Rise
UPDATED -- Consumers opened their wallets a little more in January than they did in December, according to new figures from the U.S. Commerce Department.
Consumer spending increased 0.4% in January from the month before as December’s figure was revised downward to a 0.1% gain from November following a first reported 0.4% increase. The January increase was the best since September.
Much of the January gain was due to a 0.8% jump in spending on services, its biggest increase since October 2001, due to higher heating bills, while spending on autos and clothes fell.
Consumer spending accounts for about two-thirds of the nation’s total economic activity.
The report also showed personal income increased 0.3% in January following no change in December. Compared to a year earlier personal income is up 4.1%.
The news is a bit of a double-edged sword as consumers reportedly ramped up spending in January following a downward revision to end of the year spending, said Lindsey Piegza, chief economist with the investment firm Sterne Agee. She says this is because the fourth quarter gross domestic product growth rate was recently revised down from 3.2% the second strongest quarter of the year to 2.4% the second weakest quarter of the year thanks to a downward revision to consumption falling from 3.3% to 2.6%.
“On net, consumers are still spending more than they're making. Meaning in order to continue with these arguably impressive consumption levels, spending needs to be supplemented with adequate job and income growth,” said Piegza. “Employment gains have waned recently, although many analysts have blamed the winter weather for the soft patch putting increasingly more pressure on this Friday's employment report to act as the proverbial tie breaker between a lackluster December and January and a robust November and October nonfarm payrolls report.”
Meantime, automakers are reporting their sales figures for February with industry analysts expecting an overall increase of just around 1%, due in large part to bad weather, which slowed other parts of the economy the month before.
GM reported a slight drop from a year earlier, but less than many were expecting, while Ford saw a 6% decline, Chrysler gained 11% with Nissan picking up 16% and having its best February on record.
Finally, another report released Monday shows economic activity in the national manufacturing sector expanded in February for the ninth consecutive month, according to a survey of nation's supply executives by the Institute for Supply Management.
Its manufacturing index registered 53.2% in February, an increase of 1.9 percentage points from January's reading of 51.3% and rebounding from an eight-month low. The New Orders Index registered 54.5%, an increase of 3.3 percentage points from January's reading of 51.2% while the Production Index registered 48.2%, a decrease of 6.6 percentage points compared to January's reading of 54.8%.
A reading above 50% indicates expansion while one below it means contraction.
Of the 18 manufacturing industries, 14 reported growth in February.
“U.S. manufacturing had been the silver lining to the recovery, however, with ample stockpiles built up over the second half of last year, activity remains subdued as we head further into 2014 and producers seek to first eat through their existing supply of goods,” said Piegza. “While weather does play a role, impending capacity and slowing consumer foot traffic, the directionless trend in manufacturing has been in place for some time ahead of the unfavorable winter weather making it difficult to point to weather alone as the cause of the tepid pace of activity.”
Going forward manufacturing will continue to struggle amid tepid domestic demand and minimal growth abroad, she said.
Finally, a separate report from the U.S. Commerce Department shows total construction spending in the U.S. increased just 0.1% in January following an upwardly revised 1.5% gain in December. Activity for the month totalal $943.1 billion, 9.3% higher than a year earlier.
A 1.1% rise in new home construction accounted for around half of the gain while nonresidential, office building and government construction fell or were flat.
Update adds manufacturing and construction activity.
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