September 22, 2020

Americans Spent More and Made Less, Data Shows

WASHINGTON — Consumer spending rose in January as Americans spent more on services, with savings providing a cushion after income recorded its biggest drop in 20 years. Other economic reports showed consumer sentiment and manufacturing activity higher.

The Commerce Department said Friday that consumer spending increased 0.2 percent in January after a revised 0.1 percent rise the prior month. Spending had previously been estimated to have increased 0.2 percent in December.

January’s increase was in line with economists’ expectations. Spending accounts for about 70 percent of American economic activity. When adjusted for inflation, it rose 0.1 percent after a similar increase in December.

Though spending increased in January, it was supported by a rise in services, probably related to utilities consumption. Spending on goods fell, suggesting some hit from the expiration at the end of 2012 of a 2 percent payroll tax cut. Tax rates for wealthy Americans also increased.

The impact is expected to be larger in February’s spending data and possibly extend through the first half of the year as households adjust to smaller paychecks, which are also being strained by rising gasoline prices.

Income tumbled 3.6 percent, the largest drop since January 1993. Part of the decline was payback for a 2.6 percent surge in December as businesses, anxious about higher taxes, rushed to pay dividends and bonuses before the new year.

A portion of the drop in January also reflected the tax increases. The income at the disposal of households after inflation and taxes plunged a 4 percent in January after advancing 2.7 percent in December.

With income dropping sharply and spending rising, the saving rate — the percentage of disposable income households are socking away — fell to 2.4 percent, the lowest level since November 2007. The rate had jumped to 6.4 percent in December.

In another report on Friday, the Institute for Supply Management said its index of national factory activity rose to 54.2 points from 53.1 in January, topping economists’ forecasts for a pullback to 52.5. It was the highest level since June 2011, a sign that manufacturing is picking up as new orders continue to accelerate.

A reading above 50 points indicates expansion in manufacturing. The sector lost traction in the second half of last year and contracted in November in the wake of the damage in the Northeast caused by Hurricane Sandy.

The new orders index jumped to 57.8 from 53.3, making for the highest level since April 2011. The gauge of production gained to 57.6 from 53.6, while inventories edged up to 51.5 from 51.

But the employment component slipped to 52.6 points, from 54.

Separately, a survey released Friday showed that consumer sentiment rose in February as Americans were more optimistic that the jobs market would improve, even as confidence in fiscal policy was near all-time lows.

The Thomson Reuters University of Michigan’s final reading on the overall index on consumer sentiment rose to 77.6 points from 73.8 in January, topping expectations for attitudes to hold steady with February’s preliminary reading of 76.3.

Fewer Americans expected unemployment to rise, with survey respondents feeling slightly better about prospects for the economy.

The barometer of current economic conditions rose to 89 points from 85, while the gauge of consumer expectations gained to 70.2 from 66.6.

At the same time, 43 percent considered government economic policies to be poor and just 15 percent said the administration was doing a good job.

“Consumers find the blame-game for policy inaction a very unsatisfactory substitute for a concerted effort to improve the economy,” Richard Curtin, survey director, said in a statement.

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