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U.S. Consumer Spending Rose Ahead of Coronavirus Spread

Consumers boosted spending as personal incomes rose in February, a month when concerns about the coronavirus pandemic began to escalate in the U.S.

Personal-consumption expenditures, or household spending, rose a seasonally adjusted 0.2% in February compared with January and personal income was up 0.6%, the Commerce Department reported Friday. Economists surveyed by The Wall Street Journal expected a 0.2% increase in spending and a 0.4% rise in personal income.

The data are a sign of U.S. consumer strength prior to coronavirus’s spread across the U.S. Consumers had been buoyed by a solid labor market and firming wages, and were widely viewed as a key support for the overall economy headed into 2020.

Economists had expected that dynamic to mostly continue throughout this year, but the coronavirus crisis and efforts to contain it have significantly changed the outlook.

The virus has spread to all 50 states with more than 80,000 cases reported in the U.S. Several state governments have responded by issuing orders for Americans to stay home and businesses to close, forcing millions of worker layoffs and bringing U.S. economic activity to a near-complete standstill.

Economists now forecast a substantial drop in U.S. economic output during at least the first half of this year, if not longer, and a sharp rise in the unemployment rate. U.S. jobless claims — a proxy measure for layoffs — reached a record 3.28 million for the week ended March 21.

Friday’s Commerce Department report showed Americans increased spending on services, but pulled back on outlays for goods in February, as the coronavirus crisis ramped up in the U.S. Meanwhile, a 0.5% rise in wages and salaries helped drive the overall increase in personal incomes last month.

The gains in spending and income came amid continued modest inflation. The price index for personal consumption expenditures, the Federal Reserve’s preferred inflation gauge, rose 0.1% in February from the prior month and 1.8% from a year earlier.

The core personal consumption expenditures index — which excludes often-volatile prices for food and energy — was up 0.2% over the month and 1.8% from February 2019. Economists forecast core prices rose 0.2% from January and 1.7% from the same month last year.

Inflation has run below the Fed’s 2% target for more than a year and is likely to remain subdued amid the pandemic’s fallout and waning consumer demand for goods and energy.

Fed officials recently cut the central bank’s benchmark interest rate to zero and introduced several measures, including purchases of nearly $1 trillion in Treasury and mortgage securities, to support the economy as coronavirus-related impacts continue.
Source: Dow Jones

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