Recent data has revealed an unexpected decline in consumer spending in the United States, as the latest figures showed a 0.2% decrease for January, following a robust 0.8% increase in the previous month. This information was released by the Bureau of Economic Analysis, highlighting that markets had anticipated a more moderate growth of 0.2% instead. A concerning trend emerged within goods spending, which fell by 1.2% last month, marking a contraction in both durable and nondurable goods.
Conversely, the growth in services spending experienced a slowdown, dropping to 0.3% from 0.7% on a monthly basis. Ksenia Bushmeneva, an economist at TD Economics, pointed out that temporary factors, such as California's wildfires and severe weather conditions, may have played a role in this reduced spending at the beginning of the year.
However, she remains optimistic about a possible rebound in consumer spending in the months ahead. The annual headline Personal Consumption Expenditures (PCE) price index saw a slight dip to 2.5% in January, which was in line with market forecasts, down from 2.6% the previous December. The sequential inflation rate held steady at 0.3% last month, aligning with public expectations. Additionally, the Fed's core inflation measure, which excludes volatile food and energy prices, decreased to 2.6% in January from 2.9% in December.
Notably, the core index recorded a 0.3% gain compared to a 0.2% increase the prior month. These figures adhered closely to analysts' predictions. Despite the recent dip in spending, Bushmeneva emphasized that U.S. households generally still enjoy a solid financial position, buoyed by a strong labor market and a considerable wealth cushion.
She forecasts that as long as these favorable conditions persist, real consumer spending should remain resilient throughout this year, with growth projected to stabilize around 2%. However, it is important to note that consumer sentiment has dipped recently, largely due to heightened political uncertainty.
The tariff plans proposed by U.S. President Donald Trump have contributed to a marked rise in inflation expectations for the coming year. This observation was further substantiated by recent results from the University of Michigan's Surveys of Consumers, which indicated that inflation expectations for the next year surged to the highest levels recorded since November 2023, correlating with a drop in consumer sentiment during this period..