US spending and income declined in February as stimulus faded

US consumers spent less in February as the effect of government stimulus checks wore off, but spending could rebound sharply in March thanks to another round of checks

Washington (AFP) - US spending dropped more than expected and income plunged in February, Commerce Department data released on Friday said, an outcome economists blamed on the tapering-off of government stimulus checks and bad winter weather that kept shoppers at home.

The 1.0 percent drop in spending was worse than expected while the 7.1 percent, or more than $1.5 trillion, plunge in income was in line with analysts' expectations.

"Spending was hit by the storm and, perhaps, a dip in spending financed by the stimulus payments; these effects can't be separated," Ian Shepherdson of Pantheon Macroeconomics said.

The $149 billion fall in spending was caused by a $155.9 billion decline in spending on goods, offset by a $7 billion increase in services spending.

The data also showed prices grew at a less-than-expected 0.2 percent in February, 1.6 percent higher than the same month in 2020.

The lack of a strong uptick in prices may soothe stock markets, which have grown wary that the $900 billion relief measure Congress approved in December and a $1.9 trillion bill enacted this month will overheat the economy even as it recovers from the Covid-19 pandemic and cause inflation to rise.

That could prompt the Federal Reserve to raise its lending rate from its zero level sooner than expected in 2024, ending the easy money policies that have helped indices rebound sharply over the past year even as the wider economy has suffered.

Consumer sentiment continues to rise

The savings rate also fell to 13.6 percent with $2.4 trillion in consumers' pockets, about where it was in December before the measure passed that month sent out checks of up to $600 per-person.

The relief measure passed in March doles out another round of payments of as much as $1,400 per-person, and Rubeela Farooqi of High Frequency Economics said to expect a similar dynamic in that month's data, with income climbing again.

"Overall, prospects for growth have brightened on a combination of factors, including progress on vaccinations, although virus cases have been edging up in recent days," she said.

"As restrictions are relaxed and support measures are delivered, household spending is set to lift growth in" the first quarter, she added.

In a separate report, the University of Michigan said its consumer sentiment index had reached its highest level in a year at 84.9, while respondents' assessments of current conditions and future expectations both posted healthy gains.

"Consumer sentiment continued to rise in late March, reaching its highest level in a year due to the third disbursement of relief checks and better than anticipated vaccination progress," the survey's chief economist Richard Curtin said.

However Curtin warned that only 45 percent of the pandemic-induced fall in the sentiment index has been recovered, while both the stimulus measures and an expected proposal from President Joe Biden to improve US infrastructure could cause consumers to fear inflation.

© Agence France-Presse