Recent data confirms that economic growth in the United States at the end of last year was weaker than initially reported, while consumer spending in January showed almost no increase. According to figures released Friday by the Bureau of Economic Analysis, inflation-adjusted consumer spending rose by just 0.1% month-over-month. In contrast, the core Personal Consumption Expenditures (PCE) price index, which excludes food and energy and is closely watched by the Federal Reserve, increased robustly by 0.4%.
A separate report indicated that the U.S. economy grew at an annualized rate of 0.7% in the fourth quarter, a period that included the longest government shutdown in history. This figure is a significant downward revision from the initial estimate of 1.4%. The data for consumer, business, and government spending, as well as exports, were all revised lower. However, indicators measuring underlying demand remained relatively stable.
Following the release of the reports, U.S. Treasury yields and stock futures moved higher. The current economic environment is markedly different, as conflict involving Iran has driven up energy prices and may negatively impact household sentiment. Tax refunds and persistent wage growth are expected to provide some support for household finances in the coming months. Nonetheless, economists caution that future spending faces risks due to the threat of heightened inflation from the conflict and a fragile labor market.
"Healthcare, housing, and insurance were the primary categories for spending in January. Of course, all of that is now ancient history," said Heather Long, Chief Economist at Navy Federal Credit Union, in a report. While markets widely anticipate that Federal Reserve officials will hold interest rates steady at their upcoming policy meeting, the persistent resurgence of inflationary pressures could delay the timeline for resuming interest rate cuts. This comes as the administration continues to call for lower borrowing costs.
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