Personal spending saw a slight uptick in January, while personal income growth rebounded moderately, showing signs of a cooling economy.
The report released by the Commerce Department on Friday showed consumer spending, edged up 0.1 percent in January – far below economists’ projections, who had predicted a gain of 0.3 percent. This comes after a 0.6 percent drop in December, its first since December 2016.
“We didn’t get more of a jump back in spending given the previous month in December. Usually, when you get a touch of shock, you get a pretty good rebound the following month,” said Stan Shipley, managing director and economist at Evercore ISI.
Personal income rose 0.2 percent in February after its first drop in over three years, also falling short of economists’ forecast.
“Poor income growth will weigh down consumer spending and seventy percent of the economy is consumer spending, so that’s a direct concern,” said Shipley. He also predicts that as we move farther away from the shutdown there will be a pick up in economic growth.
Data from the report showed consumers are spending less on automobiles and non-durable goods. This could be partly due to more millennials moving to big cities for jobs where cars aren’t necessary and rideshare services like Lyft and Uber making it easier for consumers to get around. Car affordability and maintenance also plays a role for many consumers who attended college and have huge student loan debt payments.
Evan Ward, 22, a business analyst for a management consultant firm in Chicago, Illinois has taken up financial saving strategies to ensure he doesn’t spend more money then he has and to pay off remaining car debt.
“I put my money into things that will help me financially in terms of getting out of debt, investments and then working with what’s left over.”
Ward sets up his own monthly budgets and analyzes and categorizes his spending costs.
“I want to be as financially sound as possible and take care of the money that I have right now,” said Ward.
Last year, Ward purchased a car to expand his pick-up dry cleaning and laundry services in the D.C. area.
“It’s never going to be worth more than what you bought it for. It was only an investment into the business.”
Kearney has $2300 remaining to pay off on his car, also noting the many unexpected and additional expenses that have come with the car’s maintenance. He hopes to have his car paid off in full by the end of the year. In the meantime, Kearney says he is spending less and saving more.
Inflation, the core personal consumption expenditure (PCE) also fell to 0.1 percent, the lowest in two years and below the Federal Reserve’s target of two percent. The drop makes for a yearly rate of 1.4 percent from 1.8 percent in December.
“It’s another data point suggesting that the economy weakened more than we realize at the end of the year,” said Christopher Low, chief economist at FTN Financial.
Stock prices also saw sharp drops in the fourth quarter along with the partial government shutdown that begin in late December and ended in late January. These factors along with tariffs are at the forefront of what reports have shown to be a slow first quarter.
“Certainly the first quarter started off on the wrong foot, but we think that’s temporary and it will take a few months to see that,” said Paul D. Mortimer Lee, chief market economist at BNP Paribas.