Consumer spending rises after adjusting for U.S. fuel prices

WASHINGTON – Consumer purchases adjusted for inflation rose in January, a sign the plunge in gasoline prices is helping boost the biggest part of the U.S. economy.

The 0.3 percent increase followed a 0.1 percent drop the prior month, a Commerce Department report showed Monday in Washington. So-called nominal spending, which doesn’t take into account changes in price, declined 0.2 percent, more than estimated, while incomes grew 0.3 percent for a second month.

The best job market since 1999, low borrowing costs and cheaper fuel bills are driving household spending, which accounts for almost 70 percent of the economy. Consumption, having wrapped up its strongest quarterly performance in four years, may get further support as wages pick up and prices remain contained.

“The consumer is really doing quite well,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit and the second-best forecaster of spending in the past two years, according to data compiled by Bloomberg. “We have job growth, wage growth, low inflation, low interest rates, so it’s a very good situation for consumers. We’ll continue to see a strong pace of spending this quarter.”

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Stock-index futures were little changed, after equities posted their best monthly performance since 2011, as investors assessed the strength of consumer spending. The contract on the Standard & Poor’s 500 Index maturing this month fell 0.1 percent to 2,101.2 at 9:18 a.m. in New York.

Survey results

Nominal spending was projected to fall 0.1 percent, according to the median forecast of 80 economists surveyed by Bloomberg. Forecasts ranged from a 0.3 percent decrease to a 0.5 percent increase.

The Bloomberg survey median called for incomes to rise 0.4 percent.

Adjusting consumer spending for inflation, which generates the figures used to calculate gross domestic product, purchases of durable goods such as furniture and appliances rose 0.2 percent in January. Demand for non-durable goods also climbed 0.2 percent. Outlays on services increased 0.4 percent, the most since September.

The economy expanded at a 2.2 percent annualized rate in the fourth quarter, Commerce Department figures showed on Feb. 27. Consumer purchases grew at a 4.2 percent rate, the fastest since 2010.

Auto sales

Demand for automobiles remains steady. Major automakers all reported their best January U.S. vehicles sales in at least seven years, led by General Motors Co.

The average cost of regular gasoline dropped to $2.03 a gallon on Jan. 25, the cheapest since 2009, according to AAA, the biggest U.S. motoring group.

The plunge in energy expenses pushed the measure of inflation based on consumer spending, the Federal Reserve’s preferred gauge, down by 0.5 percent from the prior month. It was up 0.2 percent from a year earlier, the least since October 2009. The gauge hasn’t been above the central bank’s 2 percent goal since March 2012.

The core price measure, which excludes food and fuel, rose 0.1 percent from the prior month and was up 1.3 percent from January 2014.

Disposable income, or the money left over after taxes, climbed 0.9 percent after adjusting for inflation, the biggest jump since December 2012. It was up 0.5 percent in the prior month.

Saving rate

The saving rate increased to 5.5 percent, also a two-year high, from 5 percent. Wages and salaries climbed 0.6 percent after advancing 0.1 percent in December.

An improving job market is helping households. Payrolls jumped by 257,000 in January to cap their strongest three-month run in 17 years. Lower fuel prices mean Americans can spend more on other goods and services.

Home-improvement retailers Lowe’s Cos. and Home Depot Inc. reported fourth-quarter profit that topped analysts’ estimates as sales get a boost from a boom in remodeling.

“Clearly it is a positive thing when a customer has more disposable income in their pocket,” Craig Menear, Home Depot’s CEO, said on a Feb. 24 earnings call.

Some shoppers are also taking advantage of discounts that retailers are offering.

Urban Outfitters Inc. in February announced fourth-quarter sales that exceeded analysts’ average estimate, helped by higher-than-expected promotional activity. Nordstrom Inc., the largest U.S. luxury department-store chain, posted fourth- quarter profit that trailed analysts’ estimates as the company cut prices to clear inventory.

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