US Consumer Spending Barely Rises After Weaker GDP Growth

Ebrahim Rahbari, Head of Rates Strategy at Absolute Strategy Research and Senior Advisor at Fordham Global Foresight, discusses the latest US consumer data.

US consumer spending barely rose in January after economic growth was weaker than previously reported at the end of last year.

Inflation-adjusted consumer spending increased 0.1% from the prior month, according to Bureau of Economic Analysis data out Friday. The so-called core personal consumption expenditures price index, which excludes food and energy items and is favored by the Federal Reserve, rose a firm 0.4%.

Another report from the BEA showed the US economy expanded at a 0.7% annualized rate in the fourth quarter — when the government experienced a record-long shutdown — compared to an initial estimate of 1.4%. Consumer, business and government spending, as well as exports were marked down, but a gauge of underlying demand was relatively solid.

The economy is in a different place now, as the war in Iran has boosted energy prices and may take a toll on household sentiment.

Tax refunds, as well as firm wage growth, should lend some support to consumers’ finances in the months ahead. Still, economists see a risk to spending going forward given the threat of greater inflation from the conflict and a fragile job market.

“Health care, housing and insurance were top categories for spending in January,” Heather Long, chief economist at Navy Federal Credit Union, said in a note. “Of course, all of this is ancient history now.” For Fed officials who are widely expected to hold interest rates steady at their policy meeting next week, uncertainty about the inflation outlook risks limiting prospects for a rate cut over the coming months.

“Interviews completed prior to the military action in Iran showed an improvement in sentiment from last month, but lower readings seen during the nine days thereafter completely erased those initial gains,” Joanne Hsu, director of the survey, said in a statement. Concerns increased about gas prices after the airstrikes on Iran, she said. That helped push this month’s average year-ahead gas price expectation to the highest since 2022.

“Going forward, any tightening in world energy markets will provide further upward pressure on gas price expectations and will likely push overall inflation expectations higher as well,” Hsu said.

The current conditions gauge rose to a five-month high of 57.8, while the expectations index slid to the lowest since November.

Consumers’ outlooks for their financial situation and the broader economy deteriorated.

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