(Bloomberg) -- U.S. personal spending decelerated in January to a still-solid pace, suggesting momentum among American consumers eased somewhat at the start of the year ahead of the coronavirus concerns.
Personal spending, which accounts for about two-thirds of the economy, rose 0.2% from the prior month after an upwardly revised 0.4% gain in December, Commerce Department data showed Friday that missed the median estimate in Bloomberg’s survey of economists. Personal income jumped 0.6%, the most in almost a year, on increases in employee compensation and social security benefit payments.
As businesses have pulled back on investment, consumption has become more crucial for growth, shouldering the weight of an economy already buffeted by trade uncertainty and the 737 Max grounding even before it confronted the virus outbreak.
New vehicles were the main driver of the rise in personal spending on goods, while services were supported by food and accommodation. That followed retail sales data out earlier this month that showed retail sales increased for a fourth-straight month. Still, the “control group” tracking underlying demand was unchanged.
The report comes as the rising virus death toll and cases spreading to new nations have sent stocks plunging. Economists surveyed by Bloomberg have cut estimates this month for first quarter economic growth to a 1.5% annualized pace from 1.7 seen in early January.
Adjusted for inflation, consumer purchases for goods and services saw a second-straight 0.1% gain from the previous month, missing projections for acceleration.
One element supporting consumer strength is higher incomes, as companies offer higher pay in order to attract and retain workers in a tight labor market. Disposable income also climbed 0.6%, the most since December 2018, following a 0.1% gain in the prior period.
The personal saving rate climbed to 7.9%, the most since April, from 7.5% the prior month.
The Federal Reserve’s preferred core gauge climbed 1.6% from a year earlier, missing forecasts and remaining shy of the Fed’s goal despite three interest-rate cuts last year. While Fed Chairman Jerome Powell recently called policy “appropriate,” investors now expect rate cuts amid concern of the impact of the coronavirus.
The broader personal consumption expenditures price gauge, which the Fed officially targets for 2% inflation, climbed 0.1% from the prior month and was up 1.7% from a year earlier, both missing estimates.
The core PCE index, which excludes food and energy, increased at a 1.585% annualized rate over the past three months compared with 1.551% in the three months through December. Policy makers view the core gauge as a better gauge of underlying price trends and have said they also aim for it to rise 2%.
