U.S. consumer spending rose in January by most in eight months

WASHINGTON – Consumer purchases climbed in January by the most in eight months, fueled by faster earnings growth and indicating the biggest part of the U.S. economy gained momentum at the start of 2016.

The 0.5 percent advance followed a 0.1 percent gain the prior month, a Commerce Department report showed Friday. The January figure exceeded the 0.3 percent median forecast in a Bloomberg survey. Incomes also climbed 0.5 percent, more than projected. The Federal Reserve’s preferred measure of inflation rose by the most since October 2014.

Steady hiring, cheap gasoline, and rising home values are powering Americans’ ability to boost spending, which accounts for almost 70 percent of the economy. Households are broadening out purchases beyond big-ticket items such as cars and houses, which bodes well at a time when manufacturing is weak.

“It’s a very positive story for consumers,” Scott Brown, chief economist at Raymond James Financial Inc. in St. Petersburg, Fla., said before the report. “They’ve got job growth, wage growth and low fuel prices. Spending will be strong enough to carry the economy through this year and avoid a recession.”

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A separate report from the Commerce Department, also issued Friday, showed gross domestic product expanded at a revised 1 percent annualized rate in the fourth quarter, faster than the previously reported 0.7 percent advance and reflecting a higher value of business inventories.

Projections for January consumer spending ranged from a decline of 0.1 percent to a gain of 0.5 percent, according to the Bloomberg survey. The previous month’s reading was initially reported as unchanged.

The Bloomberg survey median for incomes called for a rise of 0.4 percent, after a previously reported 0.3 percent gain. The January gain was the most since June.

Real spending

Adjusted for the effect of price changes, spending increased 0.4 percent, the most since May.

Disposable income, or the money left over after taxes, rose 0.4 percent for a second month, after adjusting for inflation. The saving rate held at 5.2 percent. Wages and salaries advanced 0.6 percent following a 0.2 percent increase.

Among other details, household outlays on services rose 0.3 percent after adjusting for inflation. The category, which includes tourism, legal help, health care, and personal care items such as haircuts, is typically difficult for the government to estimate accurately.

Services spending for last month probably reflected a surge in utility use as colder temperatures returned in January following an unseasonably warm December. A winter storm also blanketed the Mid-Atlantic and Northeast regions with snow late last month.

Goods outlays

Spending on durable goods, which includes automobiles, increased 1.1 percent after adjusting for inflation, while outlays for non-durable goods, which include gasoline, rose 0.4 percent.

The Federal Reserve’s preferred measure of inflation picked up, the report showed. The price gauge based on the personal consumption expenditures index increased 0.1 percent from the prior month and was up 1.3 percent from a year earlier. Inflation hasn’t reached the Fed’s 2 percent goal since April 2012.

The core price measure, which excludes food and fuel, rose 0.3 percent from the prior month and climbed 1.7 percent from January 2015, which was the most since November 2012.

Fed policy makers are trying to balance concern over market turmoil and slowing overseas economies with signs that U.S. inflation is picking up. They held the target for the benchmark fed funds rate at 0.25-0.5 percent in January after lifting rates at the December meeting for the first time since 2006.

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