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US growth loses steam as consumer sentiment dips

Washington, March 29, 2014

US consumer spending increased in February, but a dip in sentiment this month offered confirmation that economic growth slowed in the first quarter.

The Commerce Department said yesterday that consumer spending rose 0.3 per cent last month after gaining 0.2 per cent in January. Last month's increase in consumer spending, which accounts for more than two-thirds of US economic activity, matched economists' expectations.

While that rise indicated the economy was regaining strength after being chilled by unusually bad weather, growth this quarter remains sluggish and households have felt the impact.

A second report yesterday showed the Thomson Reuters/University of Michigan's consumer sentiment index dipped to 80 in March from 81.6 in February.

"Current conditions in the overall economy were reported by consumers to have recently weakened," survey director Richard Curtin said.

A combination of bad weather, a slow pace of inventory accumulation by businesses, the expiration of long-term unemployment benefits and cuts to food stamps is expected to hold back economic growth to an annualised pace of around 2 per cent in the first quarter. But a rebound is expected as these factors fade.

The economy grew at a 2.6 per cent rate in the fourth quarter.

US consumer spending in February was lifted by an increase in services consumption, likely because of increased demand for health care and utilities.

When adjusted for inflation, spending rose 0.2 per cent. January's real consumer spending was, however, revised to show a 0.1 per cent gain instead of a 0.3 per cent jump. This measure goes into the calculation of gross domestic product, and January's revision suggested consumer spending cooled this quarter after logging its fastest pace in three years in the final three months of 2013.

"The consumer did go into hibernation this winter, but we expect consumers to be out in full force now that spring is upon us, boosting GDP in the second quarter," said Bank of Tokyo-Mitsubishi UFJ chief financial economist Chris Rupkey.

Income rose 0.3 per cent last month after rising by the same margin in January. It continues to be supported by government transfers for healthcare payments, which offset the drag from the expiration of the long-term unemployment benefits.-Reuters




Tags: US | consumer | winter |

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