US consumer spending up solid 0.5 percent in January

Chancellor George Osborne warned last month that the United Kingdom was facing a risky cocktail of risks in 2016, pointing to falling oil prices, slowing growth in China and turbulence in the markets.

The US Commerce Department said consumer spending increased 0.5 percent, the largest gain since March 2015, as households bought more of a range of goods.

Shoppers check out a lighting store this month in Miami Beach. The…

However, Friday’s report indicated consumer spending – which drives two-thirds of U.S. economic output – advanced at a slower pace than previously expected in the holiday season.

In the 85 years for which BEA has calculated the annual change in real GDP there is only one ten-year stretch-2006 through 2015-when the annual growth in real GDP never hit 3 percent.

The PCE price index only rose 0.1% in January, but the effects of last year’s large drop in gasoline prices is starting to fade.

The Office For National Statistics’ (ONS) second estimate of GDP growth was unrevised.

He said: “The trend in the economy looks to be deteriorating further in the first quarter”.

In the fourth quarter, consumer spending slipped to 2 percent, down from the initial estimate of 2.2 percent and below the 3 percent in the third quarter.

“First-quarter GDP growth is on track to rebound to a very healthy 2.5 percent [rate] which should dampen any concerns about an imminent recession”, said Paul Ashworth, chief USA economist at Capital Economics.

While UK GDP growth of 0.5% for October to December represented a pick-up on the previous three months, the ONS said the economy expanded 2.2% during 2015 as a whole.

Consumers, for their part, boosted spending rose 0.5% last month. First of all, there’s the question of how all of this will impact Federal Reserve policy going forward and whether we’ll see additional interest rate increases this year.

“Other things equal, the upward revision to inventories implies weaker growth than now expected in Q1, because the difference between the level of inventory and where it needs to be – in order to restore prior norms, relative to sales – is bigger than previously believed”, said Ian Shepherdson of Pantheon Macroeconomics.

Consumer spending, which accounts for more than two-thirds of US economic activity, rose by an upwardly revised 0.1 percent in December.

Positive contributions from personal consumption expenditures, residential fixed investment, and federal government spending were partially offset by negative contributions from exports, non-residential fixed investment, state and local government spending, and private inventory investment, the report stated. Business investment fell 2.1%, compared with forecasts for a 0.9% drop in a Reuters poll of economists. Fed Chair Janet Yellen had been predicting that inflation would start to move higher this year as the impact of last year’s steep declines in energy prices start to fade.

Between Q4 2014 and Quarter 4 2015, GFCF was estimated to have increased by 2.7%.