Winter Economics: Consumer Spending Concentrated on Heating Needs
Economic reports in the first two months of the year have provided conflicting diagnoses about the health of the American consumer — whose spending accounts for approximately 70 percent of the United States gross domestic product. In many ways, the spending environment has been a difficult one; in both December and January, the U.S. economy created far fewer jobs than anticipated, a phenomenon that was likely the result of frigid temperatures sweeping the nation but nevertheless impacted how much discretionary income many Americans had at the beginning of the year.
In general, the economy was not as strong in the final months of 2013 as previously thought, with weaker momentum in consumer spending, and that serves to explain, in part, why consumer spending measure have not shown the marked improved economists had expected. Last Friday, the Department of Commerce’s Bureau of Economic Analysis slashed its earlier estimate for fourth-quarter gross domestic product from the 3.2 percent pace it reported last month to a 2.4 percent annual rate. The downward revision was a sign that the economy had indeed lost momentum in the final three months of 2013 as feared. While everyday private-sector activity drove the economy forward in the fourth quarter, real personal consumption expenditures were lowered from a 3.3 percent increase to a 2.6 percent gain.
Then Commerce Department data showed that January was the second consecutive month of negative growth in retail sales, while Gallup’s self-reported spending survey found that in the first month of the year, consumers spent an average of $78 per day, not including normal household bills and major purchases such as homes and cars. That figure was a 14-month low. When the Commerce Department’s February retail sales report is released on March 13, economists will have a clearer picture of consumer spending, but Gallup’s self-reported spending survey has already indicated that February may have been a better month than for the American consumer than January, with daily spending rebounding to an average of $87 — an increase from the $83 reported in February 2013 and the strongest February result since 2008. It is by no means unusual for February spending to be higher than January’s; typically, consumers spend less in the first month of the year after spending relatively more during the Christmas holiday season.