U.S consumer spending turns red in January fueling expectations for another rate cut this year

U.S consumer spending turns red in January fueling expectations for another rate cut this year
  • U.S consumer spending turns red in January fueling expectations for another rate cut this year.
  • U.S consumer spending increases by 0.2% in January versus 0.4% in December and 0.3% expected.
  • U.S consumer spending may further lose momentum due to the Coronavirus outbreak.

In its monthly report on personal spending, the U.S Bureau of Economic Analysis highlighted a slowdown in the U.S consumer spending in January. The Bureau further added that owing to the rapid spread of Coronavirus across borders that is fueling a higher risk of recession, household spending is likely to keep under pressure in the upcoming months as well.

The economic data on Friday also recorded a contraction in the goods trade deficit in January. While it is expected to be good news for GDP calculation, a lot, as per the experts, depends on the potential impact of Coronavirus on the U.S.

U.S Economic Expansion Is Currently In Its 11th Year

The health emergency that originated in China has so far infected over 80,000 people worldwide and caused nearly 3,000 deaths. Analysts see the virus outbreak as a catalyst that could potentially threaten the longest economic expansion (currently in the 11th year) in the United States in history.

Chairman of the U.S Federal Reserve, Jerome Powell, relieved the financial markets and reiterated that the core components of the U.S economy still show signs of strength in his comment on Friday. While he acknowledged that the Coronavirus outbreak is threatening the global economic activity, he expressed confidence that the U.S Fed will employ its tools and strategize accordingly to support the U.S economy.

While the U.S Federal Reserve cut rates three times in 2019 and accentuated that the monetary policy is likely to remain unchanged in 2020, the virus crisis and its effect on personal spending that has so far been supporting the economy against the global headwinds, is likely to push Powell to consider another rate cut this year that could come as early as in March, according to a senior economist Lydia Boussour of Oxford Economics in New York.

U.S Consumer Spending Increases By 0.2% In January

The Commerce Department revealed a 0.2% growth in consumer spending in January versus a higher 0.4% gain noted in December. Analysts had anticipated consumer spending to climb 0.3% last month. Part of the lower than expected growth in consumer spending was attributed to unseasonably mild weather in the U.S that had the clothing stores report reduced sales while affecting demand for heating as well.

The monthly report on personal income, however, turned green with a 0.6% increase (highest since February 2019) in January versus 0.1% recorded in December and 0.3% estimated by the analysts.

Friday’s economic data weighed on the U.S dollar index that resulted in the EUR/USD currency pair closing the week at 1.1020 level after touching a daily high of 1.1051.

By Michael Harris
Specialising in economics by academia, with a passion for financial trading, Michael Harris has been a regular contributor to Invezz. His passion has given him first hand experience of trading, while his writing means he understands the market forces and wider regulation.
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