US Consumer Spending - The Growth Rate Report On Consumer SpendingA new US government report has revealed that US consumer spending rose in February for a fifth straight month. While, this seems encouraging on the surface, a further analysis of the numbers reveals that the growth rate of consumer spending slowed down to 0.3% from the revised figure of 0.4% for January. Thus, while there has been growth in consumer spending for five straight months, there seems to be some tapering off, which suggests that there is a degree of sluggishness still plaguing the US economy. The main reason for the slowdown seems to be related to the sluggishness in the job market, where a high unemployment rate is perhaps not leaving enough disposable income in the consumer's wallet and leading to a slowdown in consumer spending.
As per official reports, the growth in personal incomes was flat after an increase of 0.3% in January. Payrolls fell by 36000 in February and blizzards in the eastern parts of the US affected workweeks as some plants had to shutdown temporarily. Other sectors displayed no better trends, effectively leaving the consumer with less to spend. With virtually no growth in personal incomes and with a marginal increase in consumer spending, savings rates fell to their lowest since October 2008.
The rise in consumer spending, even though lower than the previous month's growth, may be considered good, given the fact that employment generation is still suffering and incomes are constrained. However, it is indicative of the fact that the US economy continues to be under pressure and employment generation could hold the key to accelerating the economy further.
As nearly 70% of the US economy is dependent upon consumption expenditure, it is important that this large engine of growth chugs along smoothly. The continuous growth in consumption expenditure for five straight months suggests that the consumer psyche has improved considerably and they are out of their shells and ready to spend as long as incomes support them. The trend in consumer spending over the last few months also suggests that the consumer is not too worried about savings and is more inclined towards spending. The dip in savings rate to its lowest since October 2008, confirms this.
There is more cheerful news that suggests that the consumer is all set to support US economic growth via demonstration of confidence in the economy. The Consumer Confidence Index compiled by the Conference Board rose to 52.5 from its 46.4 level in February. The latest index readings have beaten the expected reading of 50, suggesting that US consumers are in a buoyant mood. The persistent rise in consumer spending for five straight months has also helped lift the expectations piece of the confidence index to 70.2 from 62.9 in February. The expectations index is a measure for a medium term view on the economy encompassing a period of about six months.
Thus, it appears that the US economy has entered a sustainable growth cycle and the key now lies in employment generation to sustain enhanced incomes and boost consumer spending further. Job creation still remains a sticky point, but with the economy showing signs of revving up, it should be a matter of time that businesses gain confidence and gradually start firming up their hiring plans.
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