Consumer spending barely increased in January while personal income made a modest recovery in February, indicating a continued slowdown of the economy in 2019.
Consumer spending, which accounts for two-thirds of the country’s economic activity, rose by just 0.1 percent following its unexpected plunge in December, the Bureau of Economic Analysis (BEA) reported Friday. The agency also revised December’s numbers to show a decline of 0.6 percent as opposed to the previously reported 0.5 percent.
Personal income too rebounded from its January decline by an unimpressive 0.2 percent in February.
While economists continue to be baffled by December’s spending numbers, they believe the partial government shutdown, bad weather, and the fading effects of last year’s tax cuts are behind January’s sluggish consumer spending.
“It [the shutdown] had a direct impact on 800,000 federal government workers and people closely associated with them,” said Robert Dye, chief economist at Comerica Inc.
He also said that a slowdown in global economic growth and uncertainty over the U.S.-China trade war and Brexit are impacting consumers’ spending decisions.
“Consumer confidence has been gradually deteriorating, business confidence has been gradually deteriorating,” said Dye.
January’s spending numbers come on the heels of other data on retail sales and housing, all of which point to a cooling economy.
Growth in gross domestic product (GDP), which is a measure of the size of the country’s economy, significantly slowed down in the last quarter of 2018. The Federal Reserve’s forecast for 2019 puts GDP growth at 2.1 percent, much below the Trump administration’s target of 3 percent.
“The economy is going to be slower than it was in 2018 but I don’t expect a recession,” said David Sloan, senior economist at Continuum Economics.
Jose Mateo, owner of Peligro Sports, a sporting goods store in New York City, said he is feeling the pinch of the slowdown. His store’s sales have been down since December, especially compared to the same time last year.
“I’ve had to let people go,” he said.
The biggest contributor to the decline in January’s consumer spending were motor vehicle sales. Riverdale motors, a New York City based car dealership is also dealing with the effects of consumers’ tightening purse strings.
“January and February are usually average until people get their taxes,” said Richard Espinal, the dealership’s general manager, “But [sales] have been lower than last year.”
Dye said that tax refunds could have affected January’s consumer spending as well. Last year’s tax cuts set off a spending high that tapered off in the fourth quarter. However, the cuts also meant smaller or no refunds for some families.
“[Consumers] are more aware of the smaller refunds and dialing their spending back in reaction to those,” said Dye.
However, Sloan said that refunds will be a bigger issue in the February spending data which, delayed by the five-week partial shutdown, will be released next month.
Personal income growth in February was largely tempered by a decline in personal interest income – a result of falling interest rates – according to the BEA report.
However, wages and salaries, which form the biggest part of the income numbers, continued their upward trend, rising at a steady 0.3 percent in February from the previous month.
“The personal income underlying picture is still solid enough to argue that spending can be supported in the months ahead,” said Sloan.