US set to rebound after poor weather

Chris Papadopoullos
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US President Barack Obama
CONSUMER spending in the US barely rose in February as households opted to save the extra cash from cheaper petrol prices.

The reluctance to spend took the US savings rate to 5.8 per cent, its highest level for two years.

Personal incomes rose by 0.4 per cent in February compared to the previous month, according to figures released by the Commerce Department yesterday. However, consumption edged up by 0.1 per cent. Accounting for inflation, spending actually declined 0.1 per cent. Many analysts have pointed to poor weather conditions as a reason why purchases were delayed.

“February’s numbers clearly were depressed by the severe weather. Both auto and non-auto retail sales dipped well below their prior trends, at a time when consumers are flush with cash and credit for big-ticket items is easier to obtain than at any time since the boom,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

However, economists expect a rebound from the weak levels activity in the first three months of the year.

“The outlook for consumption over the remainder of this year looks good,” said Paul Ashworth, the chief US economist at Capital Economics. “Households are still flush with the money saved from the big drop-off in gasoline prices and, with the labour market still on fire, incomes should continue to increase at a solid pace. That provides the scope for a big gain in consumption.” Ashworth predicts growth in the first three months of the year was only 1.5 per cent annualised – how much the economy would grow in a year if current growth continued.

“The lagged effect of the plunge in gas prices in the fall is very likely to make itself felt in the second quarter [April to June], and at least some of the spending prevented by the severe weather will be shunted into the spring,” Shepherdson said. “With consumers under much less pressure to reduce their leverage than was the case a few years ago, we see plenty of room for spending to accelerate markedly over the next few months.”

Shepherdson also anticipated relatively weak growth in the first three months of the year – an annualised rate of less than two per cent. But he expects much stronger growth in the period from April to June.