Fiscal stimulus fires up US consumer spending

28 February, 2021 12:00 AM printer

WASHINGTON: US consumer spending increased by the most in seven months in January as the government doled out more pandemic relief money to low-income households and new COVID-19 infections dropped, positioning the economy for faster growth in the first quarter.

Despite the strong rebound in consumer spending reported by the Commerce Department on Friday, price pressures were muted. Inflation is being closely watched amid concerns from some quarters that President Joe Biden’s proposed $1.9 trillion COVID-19 recovery package could cause the economy to overheat, report agencies.

The plan, being considered by the U.S. Congress, would be on top of a rescue package worth nearly $900 billion approved by the government in late December. Federal Reserve Chair Jerome Powell has played down the inflation fears, citing three decades of lower and stable prices.

“Thanks to Washington, the economic outlook in the near future is sunny,” said Sung Won Sohn, finance and economics professor at Loyola Marymount University in Los Angeles.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, jumped 2.4 per cent last month. That was the biggest gain since last June and ended two-straight monthly declines. Personal income shot up 10 per cent, the largest increase since last April when the government disbursed the first round of stimulus checks. Income rose 0.6 per cent in December.

The recent stimulus package included $600 checks to mostly low-income and some middle-income Americans. The package also extended a government-funded weekly unemployment subsidy as well as benefits for millions of people who do not qualify for state unemployment programs as well as those who have exhausted their six months of eligibility. These benefits expire in mid-March.

The consumer spending report added to upbeat data this month on manufacturing output, building permits and home sales.

Consumers bought motor vehicles, recreation goods, food and beverages. They also boosted spending on services such as hotel accommodations and restaurants, as well as doctor visits.

Economists polled by Reuters had forecast consumer spending rebounding 2.5 per cent in January and income accelerating 9.5 per cent.

U.S. stocks were trading lower. The dollar rose against a basket of currencies. U.S. Treasury yields fell.

When adjusted for inflation, consumer spending increased 2 per cent last month after decreasing 0.8 per cent in December. But robust consumer spending is drawing in imports.