Washington: Due to restrictions on new businesses to slow the spread of COVID-19 and the temporary expiration of government-funded benefits for millions of unemployed Americans, US consumer spending fell for the second consecutive month in December.
The report from the US Department of Commerce on Friday also showed that the inflation rate rose steadily last month. Other data showed that labor costs rose steadily in the fourth quarter, supporting expectations of increased inflation this year.
But rising above the Fed’s 2% target (flexible average) is unlikely to worry policymakers. As the economy overcomes the epidemic, the U.S. central bank is expected to maintain its ultra-loose monetary policy stance for some time. There is still overcapacity in the entire economy, which may limit the company’s ability to raise prices.
“The Fed would like inflation to average 2%, so it would like inflation to temporarily move above 2%,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania. “Inflation pressures will remain limited to a few sectors as high unemployment will restrain wage growth.”
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, slipped 0.2% last month as outlays at restaurants declined. Spending at hospitals also fell, likely as patients stayed away in fear of contracting the coronavirus.
Households also cut back spending on recreation. Consumer spending tumbled 0.7% in November. Economists polled by Reuters had forecast spending would fall 0.4% in December.
After adjusting for inflation, consumer spending fell by 0.6% last month and by 0.7% in November. This is likely to lay the foundation for consumer spending in the first quarter.
As states including New York and California have begun to relax restrictions related to the pandemic, it is not expected to drop in January. However, spending on long-term manufactured goods, the main driver of spending during the pandemic, fell for the second consecutive month in December. Non-durable goods spending fell for the third consecutive month. Services grew by 0.1%.
Tim Quinlan, senior economist at Wells Fargo Securities, said: “Commodity spending has obviously passed, and we expect the strong growth in demand in the second half of last year to also affect commodity consumption early this year.” In Charlotte, North Carolina. “Until the vaccine is widely used, we do not expect expenditure to increase significantly.”