Will U.S. GDP Benefit From February’s Spending and Income Gains?

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Source: Thinkstock

Source: Thinkstock

Consumer spending in the United States has been growing at a modest pace, and in February, Americans spending increased by the most in three months. Data contained in the Department of Commerce’s Personal Income and Outlays report showed that personal consumption — which includes spending on products ranging from shoes to fuel oil — rose 0.3 percent last month. That slight gain follows January’s even smaller 0.2-percent rise, which itself was more modest than expected; Friday’s report downwardly revised January’s gain from 0.4 percent. While the size February’s consumer spending increase does suggest that the cold weather that plagued much of the country early this year has loosened its frigid grip on the U.S. economy, spending is overall still quite soft.

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“The momentum is shifting higher,” TD Securities deputy head of U.S. research and strategy, Millan Mulraine, told Bloomberg. “It’s moving in the right direction, though we are starting from a lower base than otherwise would have been thought.” The cold weather has not only put consumer spending at a low starting point for 2014, but also made it difficult for economists to understand underlying consumer spending trends.

Almost as important as the overall consumer spending figure is what sectors of the economy drove household expenditures. In January, medical expenses accounted for more than half of the months spending increase, likely because a number of Americans were paying premiums for policies purchased through the Affordable Care Act’s insurance marketplaces. Those insurance policies went into effect on January 1. “Those people who are now covered by Medicaid for the first time or who have recently signed up for a private policy have started to consume medical services,” Capital Economics economist Paul Dales said in a note to clients, obtained by The Wall Street Journal. 

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