NEW YORK — Personal consumer expenditures in the United States declined by 0.2 percent in January, thereby marking a second consecutive monthly drop in nominal spending after a 0.3 percent decrease in December, RBC Economics reported today.
The January decline, however, was entirely accounted for by lower prices, mainly a 17.4 percent plunge in the price of gasoline, which sent the PCE deflator downward by 0.5 percent in the month, said Nathan Janzen an RBC economist.
Excluding the effect of prices, the volume of sales rose by 0.3 percent in January following a 0.1 percent dip in December but a solid 0.6 percent gain in November. The volume of spending on durable and non-durable goods each rose 0.2 percent in January. Spending on services, also in volume terms, rose 0.4 percent following a 0.1 percent December increase and a 0.3 percent rise in November.
The 0.5 percent drop in headline PCE prices left the measure up just 0.2 percent from a year ago, which was the lowest year-over-year change since October 2009, said Janzen. The core PCE deflator, which excludes food and energy components, inched upward by 0.1 percent, with the year-over-year rate unchanged from December at 1.3 percent.
Personal incomes increased by 0.3 percent in January, which was slightly weaker than expectations for a 0.4 percent gain, Janzen explained. Employee compensation rose by 0.5 percent, roughly in line with the 0.5 percent gain in average hourly wages earlier reported in the January employment report; however, declines in proprietors’ income (-0.9 percent) and receipts from assets (-0.2 percent) provided a partial offset.
Disposable income rose by a slightly stronger 0.4 percent, which, along with the dip in nominal spending, sent the saving rate upward to 5.5 percent, which was its highest level since December 2012, from 5.0 percent a month earlier.
“The dip in nominal personal spending in January was entirely accounted for by lower prices, as gasoline prices fell sharply in the month,” said Janzen. “The 0.3 percent increase in the volume of spending left that measure up an annualized 1.8 percent in January relative to its fourth-quarter 2014 average.
“We expect solid recent improvements in labor markets, strong income growth, and low gasoline prices will likely provide an additional boost to spending volumes going forward,” he explained. “That leaves data during January in line with our monitoring that consumer spending will increase at a solid 2.8 percent annualized rate in the first quarter of 2015, thereby representing little payback from the outsized 4.2 percent and 3.2 percent increases in the fourth and third quarters of 2014, respectively.”
SOURCE: RBC Economics press release