Real consumer spending increased a scant 0.1% in February 2008, the U.S. Commerce Department announced Friday, inline with expectations. It was the third straight month of sub-par consumer demand, suggesting that a major component of U.S. economic growth is faltering, which typically leads to a recession.
Meanwhile, inflation eased in January 2008, with consumer prices increasing 0.1%. Core prices, which exclude food and energy, also increased just 0.1%. For the past 12 months, consumer prices have increased 3.4%, while the core rate has increased 2%, or below the U.S. Federal Reserve's inflation ceiling, i.e. within the Fed's 'comfort zone.'
In addition, personal income increased 0.5% in February 2008, with wages and salaries increasing 0.3%, asset income rising 0.2%, while rental income plunging 5.3%. This increase in income was above expectations of 0.3%.
Economic Analysis: One negative and one positive data point for the U.S. economy in the report. The essentially flat 0.1% increase in consumer spending for the third straight month is indicative of a slowdown in consumer demand, which suggests, at minimum, continued economic sluggishness ahead. A bright point: core inflation, running at 2.0%, remains below what the U.S. Federal Reserve considers to be excessive. If the core rate doesn't increase, that should provide additional leeway for the Fed to further lower short-term interest rates, should it choose to do so.
February consumer spending rises a scant 0.1%, pointing to recession
Posted Mar 28th 2008 9:30AM by Joseph Lazzaro
Filed under: Economic data, Federal Reserve, Recession
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Reader Comments (Page 1 of 1)
3-28-2008 @ 11:03AM
Michael Schneider said...
I would include the rise in income, small as it was, as a positive.
It is no surprise that consumer spending is low because we have seen some of the housing data on things like new homes-- those are big purchases and they also bring further spending requirements with them. Still, it is worth noting that consumer spending was up not down.
The consumer spending data and the news from retail this morning shows some fear on the part of consumers but in recent days there has been a little more optimism in the press on Ben Bernanke's actions freeing up credit-- that should alleviate some of the fear although we can expect more troubles in finance and housing.
The inflation numbers should continue to improve and they really should put to rest some of the misguided fears about imminent stagflation (fueled by Alan Greenspan among others). You have housing prices finally showing some decline and some curbs on commodity speculation which will help and a labor market that is not favorable to inflation. Retail sales have been off but prices are down and bargains are, in my limited observations, very plentiful. That isn't an environment that fuels inflation.
Dr. Michael Schneider runs several Web sites including http://www.Barrelomoney.com and writes the free Barrel View weekly e-mailing.