By Geoffrey Smith
Investing.com -- U.S. consumer spending slowed sharply in February as the effect of pandemic-driven stimulus programs faded and high inflation started to bite.
Personal spending rose only 0.2% on the month, down from an upwardly revised 2.7% in January, according to figures released by the Bureau of Economic Analysis. That was comfortably below expectations for a 0.5% rise. That was despite the fact that personal income rose a more respectable 0.5%, in a month when the effects of the winter wave of Covid-19 had already peaked.
At the same time, the data series widely seen as the Federal Reserve's preferred measure of inflation posted another chunky increase, with the index for personal consumer expenditures rising 0.6% on the month, taking the annual rate to 6.4%. The core rate of PCE inflation rose to 5.2%, both figures representing 40-year highs. Greg Daco, an analyst with Oxford Economics, noted that, adjusted for inflation, spending had fallen 0.4%.
Analysts view the PCE price index as a better guide to inflationary trends because it is quicker to reflect changes in prices for goods and services that are bought more regularly.
The numbers provided fresh evidence of consumer spending reverting to more normal patterns, after two years punctuated by lockdowns and dominated by working-from-home pushed spending in the direction of home improvements and electronic appliances. The strongest gains were seen in food services and accommodation, along with recreation. By contrast, spending declined most on motor vehicles and parts, and on furnishings.
That trend may yet have further to run: Oxford's Daco noted that spending on goods is still 7.7% above its pre-Covid trend, while spending on services is nearly 4% below it.
Other data released at the same time showed that initial jobless claims ticked up unexpectedly last week to 202,000, but continuing claims continued their downward run to a new 60-year low of 1.307 million.
"The improvement is likely to continue but remain unsteady as there's not much more room for claims to fall," said Daniel Zhao, chief economist with Glassdoor, via Twitter.
The data come a day before the Labor Department's monthly employment report, which is set to show another robust gain in employment as the U.S. economy puts the pandemic behind it. The Department's monthly survey of job openings, released on Wednesday, showed that vacancies continue to trend near record levels, while rising prices and thinning financial cushions, along with the lure of higher wages, push inactive people back into the labor force.