Economy Slowdown in US consumer spending; Industrial production weak

Slowdown in US consumer spending; Industrial production weak

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By Lucia Mutikani

WASHINGTON (Reuters) – US consumer spending continued to slow in January, with clothing store sales falling the most since 2009. This trend could raise concerns about the ability of the economy to continue expanding at a moderate pace.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The economy's outlook was also dimmed by other data on Friday showing industrial production decreased for a second straight month in January as unseasonably mild weather depressed demand for utilities, and Boeing suspended production of it troubled 737 MAX plane. The reports prompted economists to predict weaker economic growth in the first quarter. “Data-reactid =” 24 “> The outlook for the economy was also clouded by other data on Friday, which showed that industrial production was in January for a second month As a result, unusually mild weather depressed demand for utilities and Boeing Suspension of production of which troubled 737 MAX aircraft. The reports prompted economists to forecast weaker economic growth in the first quarter.

They followed the remarks by US Federal Reserve chairman Jerome Powell this week to lawmakers that “the economy is in a very good place and is developing well.” The U.S. Federal Reserve kept interest rates stable last month and is expected to keep monetary policy on hold this year after cutting borrowing costs three times in 2019.

“The consumer spending vulnerability entered its sixth month in January,” said Michael Feroli, economist at JPMorgan in New York. “With corporate investment spending still lacking, the economy will need a livelier consumer to outperform growth.”

Retail sales excluding automobiles, gasoline, building materials and food services remained unchanged in the past month. The December data has been revised down to show that core retail sales grew 0.2%, instead of increasing 0.5% as previously reported. The core retail sales correspond most closely to the consumption component of the gross domestic product.

Consumer spending accounts for more than two-thirds of US economic activity. Economists surveyed by Reuters had forecast retail sales to grow 0.3% in the past month.

The unchanged value of retail sales indicated a further drop in momentum at the beginning of the first quarter after consumer spending rose 1.8% year-on-year in the October-December quarter. This was a step backwards from the 3.2% pace recorded in the third quarter.

The economy grew 2.3% in 2019 and slowed from 2.9% in 2018.

The slowdown in consumer spending, a worsening decline in corporate investment and weak manufacturing industries cast a shadow over the longest economic expansion that has been recorded since its eleventh year. The economy is also at risk from the deadly corona virus, which has led economists to downgrade their growth estimates for the Chinese economy.

In a separate report on Friday, the Fed announced that industrial production fell 0.3% in January after declining 0.4% in December. Industrial production was curbed by a 4.0% drop in supply production. Industrial production was also impacted by a 7.4% decrease in the production of aerospace equipment and various modes of transport in the past month.

US stocks were mixed as investors digested the weak data and worried about the impact of the coronavirus epidemic on the global economy. The dollar remained stable against a basket of currencies as US government bond prices rose.

BOEING DRAG

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Boeing discontinued production of the MAX aircraft last month, which was suspended since last March after two fatal crashes in Indonesia and Ethiopia. Economists estimate that Boeing’s largest production line stop in more than 20 years could deviate at least half a percentage point from first quarter GDP growth.

Economists also expected the corona virus to disrupt supply chains for manufacturers, particularly electronics manufacturers, although higher factory inventories could mitigate some of the impact on industrial production.

“While US supply chains are now more integrated in China than they were a few decades ago, manufacturing inventories are relatively high,” said Sarah House, senior economist at Wells Fargo Securities in Charlotte, NC. “That said, it can often take a single out-of-stock part to disrupt production, so we would expect production to remain pretty weak over the next few months.”

According to Friday’s reports, growth estimates for the January-March quarter ranged from just 1.0% to 2.4%. The economy grew by 2.1% in the fourth quarter, which benefited from an improvement in the trade balance as imports fell sharply.

Consumer spending is slowing despite a strong labor market that is steadily increasing wages. There is cautious optimism for an upturn. A third report on Friday shows that the University of Michigan consumer sentiment index rose in early February. However, higher consumer sentiment has not led to robust spending in recent months.

Retail sales rose 0.3% overall in January. However, the December data has been revised down to show that sales grew 0.2%, instead of rising 0.3% as previously reported.

Revenue was boosted by car purchases, which recovered 0.2% after a 1.7% slump in December. Petrol station revenues decreased by 0.5%. Sales in electronics and household goods stores decreased by 0.5%. Sales of building materials stores rose 2.1%, most since last August after rising 1.3% in December. Revenues were likely driven by unusually warmer temperatures that boosted construction activity.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Receipts at clothing stores dropped 3.1% last month, the most since March 2009. Clothing retailers have been struggling with plummeting mall traffic as consumers opt for online shopping announced this month plans to close 125 of its least productive stores over the next three years and cut more than 2,000 corporate jobs. “data-reactid =” 47 “> Revenue from clothing stores decreased 3.1% last month, on strongest since March 2009. Apparel retailers have had to deal with the decline in the mall as consumers choose to shop online announced plans this month to close 125 of its least productive businesses over the next three years and cut more than 2,000 corporate jobs.

Online and mail order sales rose by 0.3%. This followed a decline of 0.1% in December. Furniture store revenue increased 0.6%. The Americans increased spending in restaurants and bars with a 1.2% increase in sales. But they cut spending on health and personal care markets. Spending on hobby, musical instrument and book stores increased by 0.1%.

(Reporting by Lucia Mutikani; Additional reporting by David Lawder; Editing by Andrea Ricci)

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