U.S. retail sales weakest in six months; inflation firming

Shoppers ride escalators at the Beverly Center mall in Los Angeles, California November 8, 2013. REUTERS/David McNew

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. retail sales recorded their smallest increase in six months in February as households cut back on motor vehicle purchases and discretionary spending, the latest indication that the economy lost further momentum in the first quarter.

Other data on Wednesday showed a steady increase in inflation, with the consumer price index posting its biggest year-on-year increase in nearly five years in February. Firming inflation could allow the Federal Reserve to raise interest rates on Wednesday despite signs of slowing domestic demand.

“Nothing here to suggest the Fed shouldn’t raise interest rates at the policy meeting that concludes later today,” said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.

The Commerce Department said retail sales edged up 0.1 percent last month, the weakest reading since August. January’s retail sales were revised up to show a 0.6 percent rise instead of the previously reported 0.4 percent advance.

Sales were likely held back by delays in issuing tax refunds this year as part of efforts by the government to combat fraud. Compared to February last year retail sales were up 5.7 percent.

February’s retail sales gain was in line with economists’ expectations. Excluding automobiles, gasoline, building materials and food services, retail sales rose 0.1 percent after an upwardly revised 0.8 percent jump in January.

These so-called core retail sales, which correspond most closely with the consumer spending component of gross domestic product, were previously reported to have increased 0.4 percent in January.

In a separate report, the Labor Department said its Consumer Price Index ticked up 0.1 percent last month as a drop in gasoline prices offset increases in the cost of food and rental accommodation. That was the weakest reading in the CPI since July and followed a 0.6 percent jump in January.

In the 12 months through February, the CPI accelerated 2.7 percent, the biggest year-on-year gain since March 2012. The CPI rose 2.5 percent in the year to January. Inflation is firming in part as the 2015 drop, which was driven by lower oil prices, fades from the calculation.

The so-called core CPI, which strips out food and energy

costs, increased 0.2 percent last month as new motor vehicle prices fell and apparel prices moderated after spiking in January. The core CPI increased 0.3 percent in January.

In the 12 months through February, the core CPI increased

2.2 percent after advancing 2.3 percent in January. It was the 15th straight month the year-on-year core CPI remained in the 2.1 percent to 2.3 percent range.

The Fed has a 2 percent inflation target and tracks an inflation measure which is currently at 1.7 percent.

ECONOMY SLOWING

The U.S. central bank is expected to raise its overnight benchmark interest rate by 25 basis points to a range of 0.75 percent to 1.00 percent on Wednesday. It increased borrowing costs last December and has forecast three rate hikes in 2017.

U.S. financial markets were little moved by the data as traders awaited the outcome of the Fed’s meeting. The Fed will announce its decision on interest rates at 2 p.m. (1800 GMT)

February’s retail sales added to January’s weak reports on trade, construction and business spending that have pointed to sluggish economic growth in the first quarter.

The Atlanta Fed is forecasting GDP rising at a 1.2 percent annualized rate in the first quarter. With the labor market near full employment, slowing growth probably understates the health of the economy. In addition, GDP growth tends to be weaker in the first quarter because of calculation issues that the government has acknowledged and is working to resolve.

Tightening labor market conditions, which are steadily lifting wages, continue to underpin consumer spending.

In February, motor vehicle sales fell 0.2 percent after declining 1.3 percent the prior month. Receipts at service stations slipped 0.6 percent, reflecting lower gasoline prices.

Sales at electronics and appliances stores fell 2.8 percent, the biggest decline since December 2011, after climbing 1.1 percent in January. Receipts at building material stores increased 1.8 percent.

Sales at clothing stores fell 0.5 percent. Retailers including J.C. Penney Co Inc <JCP.N>, Abercrombie & Fitch <ANF.N> and Macy’s Inc <M.N> are scaling back on brick-and-mortar operations amid increased competition from online retailers, led by Amazon.com <AMZN.O>.

Sales at online retailers jumped 1.2 percent last month after increasing 0.5 percent in January. Receipts at restaurants and bars dipped 0.1 percent, while sales at sporting goods and hobby stores fell 0.4 percent.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

U.S. consumer spending slows; inflation pushes higher

A shoppers carries bags with purchases through Quincy Market in downtown in Boston, Massachusetts, U.S. January 11, 2017. REUTERS/Brian Snyder

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. consumer spending rose less than expected in January as the largest monthly increase in inflation in four years eroded households’ purchasing power, pointing to moderate economic growth in the first quarter.

The surge in inflation raises the possibility of an interest rate increase from the Federal Reserve this month. While still below the U.S. central bank’s 2 percent target, inflation is now in the upper end of the range that Fed officials in December felt would be reached this year.

The Commerce Department said on Wednesday that consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.2 percent after rising 0.5 percent in December. Economists polled by Reuters had forecast consumer spending gaining 0.3 percent in January.

Consumer spending is likely to remain supported amid promises by the Trump administration of sweeping tax cuts and increased infrastructure spending.

In a speech to Congress on Tuesday night, President Donald Trump said his economic team was working on a “historic tax reform that will reduce the tax rate on our companies” and promised a “massive” tax relief for the middle class. Trump offered no further details.

Consumer confidence has surged following Trump’s election victory, hitting a 15-1/2-year high in February.

In January the personal consumption expenditures (PCE) price index increased 0.4 percent – the largest gain since February 2013 – after rising 0.2 percent in December.

In the 12 months through January, the PCE price index jumped 1.9 percent. That was the biggest year-on-year gain since October 2012 and followed a 1.6 percent increase in December.

Excluding food and energy, the so-called core PCE price index rose 0.3 percent in January. That was the biggest increase since January 2012 and followed a 0.1 percent gain in December.

The core PCE price index increased 1.7 percent year-on-year after a similar gain in December. The core PCE is the Fed’s preferred inflation measure.

Prices for U.S. Treasuries fell, with the yield on the interest-rate sensitive 2-year note <US2YT=RR> rising to its highest level since August 2009. Fed funds futures were pricing in a 65 percent chance of an interest rate hike at the Fed’s March 14-15 policy meeting.

The U.S. central bank has forecast three rate increases this year. The Fed hiked its overnight interest rate last December by 25 basis points to a range of 0.50 percent to 0.75 percent.

The dollar rose against a basket of currencies, while U.S. stock index futures pared gains slightly.

REAL SPENDING FALLS

Rising price pressures, however, suggest that consumer spending will probably not provide a big boost to gross domestic product in the first quarter. When adjusted for inflation, consumer spending fell 0.3 percent in January, the first drop since August and the biggest in three years. Real consumer spending increased 0.3 percent in December.

Consumer spending increased at a 3.0 percent annualized rate in the fourth quarter, helping to blunt some of the impact on the economy from a wider trade deficit. The economy grew at a 1.9 percent rate in the fourth quarter.

Consumer spending in January was held back by a 0.3 percent drop in purchases of long-lasting manufactured goods such as automobiles. Spending on services was unchanged.

Personal income rose 0.4 percent in January after gaining 0.3 percent in December. Wages and salaries rose 0.4 percent.

Income at the disposal of households after accounting for inflation and taxes, fell 0.2 percent, the first decline since October 2013. Savings increased to $795.7 billion in January from $779.5 billion in December

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

U.S. economy slows in the fourth-quarter; consumer spending remains bright spot

A man pushes his shopping cart down an aisle at a Home Depot store in New York, July 29, 2010. REUTERS/Shannon Stapleton

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. economic growth slowed in the fourth quarter as previously reported, with robust consumer spending offset by downward revisions to business and government investment.

Gross domestic product rose at a 1.9 percent annual rate in the final three months of 2016, the Commerce Department said on Tuesday in its second estimate for the period. That matched the estimate published last month.

Output increased at a 3.5 percent rate in the third quarter.

The economy grew 1.6 percent for all of 2016, its worst performance since 2011, after expanding 2.6 percent in 2015.

Economic data early in the first quarter has been mixed, with retail sales rising in January but homebuilding and business spending on capital goods easing.

The economy may get a boost from President Donald Trump’s proposed stimulus package of sweeping tax cuts and infrastructure spending as well as less regulations.

Trump, who pledged during last year’s election campaign to deliver 4 percent annual GDP growth, has promised a “phenomenal” tax plan that the White House said would include tax cuts for businesses and individuals.

Details on the proposal remain vague, though Treasury Secretary Steven Mnuchin said on Sunday that Trump would use a policy speech to Congress on Tuesday night to preview some aspects of his tax reform plans.

Economists polled by Reuters had expected fourth-quarter GDP would be revised up to a 2.1 percent rate.

U.S. Treasury prices rose after the data, while the dollar <.DXY> dipped against a basket of currencies. U.S. stock index futures were largely unchanged.

CONSUMER SPENDING JUMPS

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, was revised sharply higher to a 3.0 percent rate of growth in the fourth quarter. It was previously reported to have risen at a 2.5 percent rate.

That meant private domestic demand increased at a 3.0 percent rate, faster than the 2.8 percent pace reported last month.

Some of the rise in demand was met with imports, which increased at a 8.5 percent rate rather than the 8.3 percent pace reported last month. Exports declined, leaving a trade deficit that subtracted 1.70 percentage point from GDP growth as previously reported.

There was a small downward revision to inventory investment. Businesses accumulated inventories at a rate of $46.2 billion in the last quarter, instead of the previously reported $48.7 billion. Inventory investment added 0.94 percentage points to GDP growth, down from the 1.0 percentage point estimated last month.

Business investment was revised lower to reflect a more modest pace of spending on equipment, which increased at a 1.9 percent rate instead of the previously estimated 3.1 percent pace. That was still the first increase in over a year and reflected a surge in gas and oil well drilling in line with rising crude oil prices.

Spending on mining exploration, wells and shafts increased at a 23.6 percent rate instead of the previously reported 24.3 percent pace. It declined at a 30.0 percent pace in the third quarter.

Investment in nonresidential structures was revised to show it falling at a less steep 4.5 percent pace in the fourth quarter. It was previously reported to have declined at a 5.0 percent rate. Overall, business investment contributed 0.17 percentage point to GDP growth, less than the 0.30 percentage reported last month.

Spending on residential construction increased at a 9.6 percent rate, which was downwardly revised from the 10.2 percent pace reported last month. The rebound followed two straight quarterly declines.

Government spending increased at a 0.4 percent rate in the fourth quarter, rather than the previously reported 1.2 percent pace of growth. As a result, government investment made no contribution to growth. It was previously reported to have contributed 0.21 percentage point.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

U.S. retail sales beat expectations in January

shopper looking at tablets in best buy

WASHINGTON, Feb 15 (Reuters) – U.S. retail sales rose more than expected in January as households bought electronics and a range of other goods, pointing to sustained domestic demand that should bolster economic growth in the first quarter.

The Commerce Department said on Wednesday retail sales increased 0.4 percent last month. December’s retail sales were revised up to show a 1.0 percent rise instead of the previously reported 0.6 percent advance.

Last month’s fairly upbeat sales came despite motor vehicle purchases recording their biggest drop in 10 months.

Compared to January last year retail sales were up 5.6 percent.

Excluding automobiles, gasoline, building materials and food services, retail sales increased 0.4 percent after an upwardly revised 0.4 percent gain in December.

These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

Economists polled by Reuters had forecast retail sales ticking up 0.1 percent and core sales gaining 0.3 percent last month.

January’s fairly solid retail sales supported views that economic growth will accelerate in the first quarter.

The economy grew at a 1.9 percent annualized rate in the fourth quarter.

Consumer spending is being supported by a tightening labor market, which is gradually boosting wage growth.

That in turn is underpinning economic growth, paving the way for at least two interest rate increases from the Federal Reserve this year.

Fed Chair Janet Yellen told lawmakers on Tuesday that “waiting too long to remove accommodation would be unwise.”

The U.S. central bank has forecast three rate increases this year.

The Fed hiked its overnight interest rate last December by 25 basis points to a range of 0.50 percent to 0.75 percent.

Last month, sales at electronics and appliances stores jumped 1.6 percent, the biggest rise since June 2015, after falling 1.1 percent in December.

Receipts at building material stores increased 0.3 percent.

Sales at clothing stores jumped 1.0 percent, the largest rise in nearly a year.

Department store sales climbed 1.2 percent, the biggest increase since December 2015.

Department store sales have been undercut by online retailers, led by Amazon.com <AMZN.O>.

That has led to some retailers, including Macy’s <M.N>, Sears <SHLD.O> and Abercrombie & Fitch <ANF.N> announcing shop closures.

Sales at online retailers were unchanged last month after soaring 1.9 percent in December.

Receipts at restaurants and bars rose 1.4 percent, while sales at sporting goods and hobby stores shot up 1.8 percent.

Receipts at auto dealerships, however, fell 1.4 percent after vaulting 3.2 percent in December.

Last month’s drop was the biggest since March 2016.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

((Lucia.Mutikani@thomsonreuters.com; 1 202 898 8315; Reuters

Messaging: lucia.mutikani.thomsonreuters.com@reuters.net))

U.S. private jobs, consumer spending data support Fed rate hike

People shop at The Grove mall in Los Angeles

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. private employers stepped up hiring in November and consumer spending increased last month, the latest signs of economic strength that could further cement the case for an interest rate hike from the Federal Reserve next month.

The data on Wednesday also showed income rising solidly and savings climbing to a seven-month high in October, positioning households to boost spending in the future.

“There is nothing in today’s reports that put a roadblock in front of a Fed rate hike in December. The economy continues to move ahead powered by the American consumer who has got the income to both spend and save for a rainy day,” said Chris Rupkey, chief economist at MUFG Union Bank in New York.

The ADP National Employment Report showed that private payrolls increased by 216,000 jobs this month, well above economists’ expectations for a gain of 165,000 jobs. The report is jointly developed with Moody’s Analytics.

The ADP figures come ahead of the Labor Department’s more comprehensive employment report on Friday, which includes both public and private sector payrolls. Economists polled by Reuters are looking for nonfarm employment to have risen by 175,000 jobs in November after increasing by 161,000 jobs in October.

In a separate report, the Commerce Department said consumer spending, which accounts for about 70 percent of U.S. economic activity, increased 0.3 percent after an upwardly revised 0.7 percent gain in September. Spending in September was previously reported to have risen 0.5 percent.

A third report showing a marginal increase in contracts to buy previously owned homes last month, however, put a wrinkle in an otherwise brightening economic outlook.

The consumer spending and private hiring reports added to data on residential construction, home sales, inflation and manufacturing that have suggested the economy sustained its momentum early in the fourth quarter after growing at its quickest pace in two years in the July-September period.

The government reported on Tuesday that gross domestic product increased at a 3.2 percent annual rate in the third quarter, driven by strong consumer spending and a surge in soybean exports.

A strengthening economy, together with a labor market that is near full employment could make the Fed comfortable to hike rates at its Dec. 13-14 policy meeting. The U.S. central bank raised its overnight benchmark interest rate last December for the first time in nearly a decade.

The dollar was trading higher against a basket of currencies, while prices for U.S. government bonds fell. Stocks on Wall Street generally rose, with both the Dow Jones industrial average and the S&P 500 index hitting record intraday highs.

INFLATION GAINING

Consumer spending could get further support next year if U.S. President-elect Donald Trump’s proposals to cut taxes and boost spending are approved by Congress.

With consumer spending firming, inflation continued to gain in October. The personal consumption expenditures (PCE) price index rose 0.2 percent after similar increases in both August and September. In the 12 months through October the PCE price index rose 1.4 percent, the biggest advance since October 2014, after increasing 1.2 percent in September.

Excluding food and energy, the so-called core PCE price index gained 0.1 percent after rising by the same margin in September. That left the year-on-year increase in the core PCE at 1.7 percent in October. The core PCE has increased by that same margin for three straight months.

The core PCE is the Fed’s preferred inflation measure and is running below its 2 percent target.

“The bottoming out in energy prices earlier this year has contributed to stronger overall inflation,” said Gus Faucher, deputy chief economist at PNC Financial in Pittsburgh.

“Inflation will continue to pick up over the next couple of years. Stronger wage growth as the labor market continues to tighten will lead firms to raise prices, as will the pass-through of higher energy prices throughout the broader economy.”

The sustained uptick in price pressures, however, curbed the gain in inflation-adjusted consumer spending, which increased 0.1 percent last month after rising 0.5 percent in September. That suggests some moderation in consumer spending this quarter from the third quarter’s solid 2.8 percent pace.

Overall consumer spending in October was supported by a 1.0 percent increase in purchases of long-lasting manufactured goods such as automobiles. Spending on services fell 0.2 percent.

Personal income rose 0.6 percent last month after increasing 0.4 percent in September. Wages and salaries advanced 0.5 percent for a second straight month.

Savings increased to $860.2 billion, the highest level since March of this year, from $814.1 billion in September.

(Reporting by Lucia Mutikani; Additional reporting by Dan Burns and David Lawder; Editing by Paul Simao)

Drop in U.S. consumer spending clouds Fed rate hike outlook

Consumers at a mall

By Jason Lange

WASHINGTON (Reuters) – U.S. consumer spending fell in August for the first time in seven months while inflation showed signs of accelerating, mixed signals that could keep the Federal Reserve cautious about raising interest rates.

The Commerce Department said on Friday that consumer spending, which accounts for more than two-thirds of U.S. economic activity, fell 0.1 percent last month after accounting for inflation.

Analysts polled by Reuters had expected a 0.1 percent gain.

“Consumers took a breather in August,” said Chris Christopher of IHS Global Insight.

Fed Chair Janet Yellen said last week she expected the U.S. central bank would raise rates once later this year to keep the economy from eventually overheating.

Prices for fed funds futures suggest investors see almost no chance of a hike at the Fed’s next policy meeting in early November and roughly even odds of an increase at its mid-December meeting, according to CME Group.

The dollar <.DXY> was little changed against a basket of currencies while U.S. stock prices were trading higher.

Consumer spending, which has been robust in recent months, partially offset the drag from weak business investment and falling inventories in the second quarter when the economy expanded at a lackluster 1.4 percent annual rate.

Economists said overall economic growth could still accelerate in the current quarter even with August’s slight decline in consumer spending.

The Atlanta Fed said growth appeared on track to accelerate to a 2.4 percent annual rate in the third quarter, according to its closely watched GDPNow forecasting model. It had forecast growth of 2.8 percent for the period earlier this week.

A tightening labor market appears to be pushing up wages and could fuel higher levels of spending in the future. Personal income rose 0.2 percent in August, in line with expectations.

Consumer prices also rose about as much expected in August, with the price index excluding food and energy increasing 0.2 percent from the prior month. That left inflation excluding food and energy at 1.7 percent in the 12 months through August, up a tenth of a percentage point from the prior month and closer to the Fed’s 2 percent inflation target.

(Reporting by Jason Lange; Editing by Paul Simao)