March 28, 2008
February Spending Flat, Inflation Threat Recedes
By MICHAEL M. GRYNBAUM
Consumer spending stayed stagnant in February, growing at the slowest pace in more than a year, as the housing slump and a weak job market continued to put pressure on the pocketbooks of Americans. The number helped drive the markets lower Friday.
At the same time, inflation receded and Americans took home slightly more income, a pair of positive developments that suggest a weak economy, not a collapsing one.
Adjusted for inflation, consumer spending stayed flat in February after growing 0.1 percent in January and declining in December. In current dollars, spending rose 0.1 percent last month, the Commerce Department reported on Friday.
“The consumer has lost whatever support they might have had from wages and salaries,” said Joshua Shapiro, the chief United States economist at MFR, a New York research firm. “There’s no momentum, no growth.”
The consumer spending report along with the profit warning Friday by J.C. Penney pushed the down slightly Friday. The Dow Jones industrials ended the day down 86.06 points at 12,216.40. The Standard & Poor’s 500-stock index fell 10.54 points. to 1,315.22, while the tech-ladened Nasdaq dropped 19.65 points to 2261.18 Trading throughout the day was fairly quiet, reflecting none of the recent volatility.
For the week, the dow was down 151 points. The Nasdaq gained 3 points while the S.& P. 500 dropped 17 points for the week.
Crude oil for May delivery fell $1.96 to $105.62 on Friday. Gold prices also declined. Treasury prices rose.
Spending by consumers is the primary engine of the economy, accounting for more than two-thirds of the gross domestic product. Recent surveys suggest the drop-off will continue. Confidence in the economy remained at a 16-year low in March, according to a separate report released Friday by the University of Michigan and Reuters.
Americans also feel worse now about the economy’s prospects than at any time since 1973, according to a private survey of 2,500 households released earlier this week.
the Standard & Poor’s 500 indexInvestors may have been pleased about an unexpected increase in personal income, which accelerated to 0.5 percent last month after a 0.3 percent reading in January. The savings rate — a measure of how much income Americans retain after expenses — moved back into positive territory after three consecutive months of flat or negative readings.
And one major impediment to spending — the soaring price of consumer products like food and gasoline — may be receding. A closely watched measure of inflation, known as the “core” P.C.E. deflator, rose at an annual rate of 2 percent in February, returning to the so-called “comfort zone” that the Federal Reserve prefers. The January reading was revised down to 2 percent.
“The Fed is getting more concerned about inflation risks the lower it pushes interest rates, but this reading indicates that the Fed has room to cut further,” Nigel Gault, an economist at Global Insight, a research firm in Lexington, Mass., wrote in a note to clients.
The “core” gauge excludes volatile prices of food and energy products but offers insight into price pressures in the broader economy. Over all, inflation grew 3.4 percent last month, declining from a 3.5 percent reading in January, which was revised down from its initial estimate.