WASHINGTON (Reuters) – U.S. consumer spending rebounded in February, likely lifted by higher prices, which could amplify fears that the economy was facing a period of tepid growth and high inflation amid an escalation in trade tensions.
Consumer spending, which accounts for more than two-thirds of economic activity, climbed 0.4% after a revised 0.3% decline in January, the Commerce Department’s Bureau of Economic Analysis said on Friday.
Economists polled by Reuters had forecast consumer spending rising 0.5% after a previously reported 0.2% fall in January.
President Donald Trump has announced a slew of tariff actions since taking office in January. On Wednesday, Trump unveiled a 25% levy on imported cars and light trucks starting next week. Economists say the size and manner in which the tariffs are being handled were detrimental to economic growth.
Business and consumer sentiment have deteriorated considerably, raising the risks of a recession, with the United States’ trade partners expected to retaliate through duties of their own. The well telegraphed tariffs have sharply widened the trade deficit as businesses rushed to secure imports.
Consumers, also eager to avoid higher prices, front-loaded their spending, much of which took place in December. The ebb in pre-emptive buying as well as unseasonably cold temperatures and snowstorms cooled spending at the start of the year.
Before the data, gross domestic product estimates for the first quarter were mostly around a 1.0% annualized rate and the odds of a contraction have risen. The economy grew at a 2.4% pace in the October-December quarter.
Trump, who sees tariffs as a tool to raise revenue to offset his promised tax cuts and to revive a long-declining U.S. industrial base, is planning to unveil a wave of reciprocal tariffs next week. Economists, however, argue that the duties will be inflationary in the short-run.
Consumers’ inflation expectations have sky-rocketed.
Federal Reserve Chair Jerome Powell acknowledged last week that inflation had started to rise “partly in response to tariffs,” adding that “there may be a delay in further progress over the course of this year.”
The Personal Consumption Expenditures (PCE) price index increased 0.3% in February after advancing by an unrevised 0.3% in January. Economists had forecast the PCE price index gaining 0.3%. In the 12 months through February, prices increased 2.5%, matching January’s rise.
Stripping out the volatile food and energy components, the PCE price index rose 0.4% after an unrevised 0.3% advance in January. In the 12 months through December, core inflation increased 2.8% after rising 2.7% in January.
The U.S. central bank tracks the PCE price measures for its 2% inflation target. The Fed last week left its benchmark overnight interest rate unchanged in the 4.25%-4.50% range. Financial markets expect it to resume its easing cycle in June.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)
Comments