WASHINGTON – US consumer spending slowed further in January, with sales at clothing stores declining by the most since 2009, a trend that could raise concerns about the economy’s ability to continue expanding at a moderate pace.
The economy’s outlook was also dimmed by other data on Friday showing industrial production decreased for a second straight month in January as unseasonably mild weather depressed demand for utilities, and Boeing BA.N suspended production of its troubled 737 MAX plane. The reports prompted economists to predict weaker economic growth in the first quarter.
They followed on the heels of Federal Reserve Chair Jerome Powell’s remarks to lawmakers this week that the “economy is in a very good place, performing well.” The US central bank last month left interest rates steady and is widely expected to keep monetary policy on hold this year after it reduced borrowing costs three times in 2019.
“The soft patch for consumer spending entered its sixth month in January,” said Michael Feroli, an economist at JPMorgan in New York. “With business investment spending still missing in action the economy will need a more buoyant consumer to register above-trend growth.”
Retail sales excluding automobiles, gasoline, building materials and food services were unchanged last month. Data for December was revised down to show the so-called core retail sales rising 0.2 percent instead of jumping 0.5 percent as previously reported. Core retail sales correspond most closely with the consumer spending component of gross domestic product.
Consumer spending accounts for more than two-thirds of US economic activity. Economists polled by Reuters had forecast core retail sales rising 0.3 percent last month.
The unchanged reading in core retail sales suggested a further loss of momentum early in the first quarter after consumer spending grew at a 1.8 percent annualized rate in the October-December quarter. That was a step-back from the 3.2 percent pace logged in the third quarter.
The economy grew 2.3 percent in 2019, slowing from 2.9 percent in 2018.
The slowdown in consumer spending, together with a deepening downturn in business investment and weak manufacturing cast a shadow on the longest economic expansion on record, now in its 11th year. The economy also facing risks from the deadly coronavirus, which has prompted economists to downgrade their growth estimates for the Chinese economy.
In a separate report on Friday, the Fed said industrial production fell 0.3 percent in January after decreasing 0.4 percent in December. Industrial output was pulled down by a 4.0 percent drop in utilities production. A 7.4 percent plunge in the production of aerospace and miscellaneous transportation equipment also weighed on industrial output last month.
U.S. stocks were mixed as investors digested the weak data and worried about the coronavirus epidemic’s impact on the global economy. The dollar was steady against a basket of currencies, while US Treasury prices rose.
Boeing last month suspended production of the MAX plane, which has been grounded since last March following two deadly crashes in Indonesia and Ethiopia. Economists estimate Boeing’s biggest assembly-line halt in more than 20 years could slice at least half a percentage point from first-quarter GDP growth.
Economists also expected the coronavirus to disrupt supply chains for manufacturers, especially electronic goods producers, though higher inventories at factories could soften some of the hit on industrial output. – Reuters
