US consumer spending slowed significantly in February, while price pressures continued to mount, with inflation posting its largest annual gain since the early 1980s.
The Commerce Department said today that consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.2% last month.
Data for January was revised higher to show outlays rebounding 2.7% instead of 2.1% as previously reported. Economists polled by Reuters had forecast consumer spending increasing 0.5%.
More expensive petrol, rents and food are forcing households to cut back spending elsewhere.
Petrol prices soared in February and broke above $4 per gallon this month following Russia's invasion of Ukraine on February 24.
A dearth of cars as semiconductors remain in short supply across the world is keeping prices of automobiles and electrical goods elevated. Prices have dramatically increased across the board.
The US personal consumption expenditures (PCE) price index increased 0.6% in February after advancing 0.5% in January.
In the 12 months to February, the PCE price index soared 6.4%. That was the largest rise since 1982 and followed a 6% year-on-year increase in January.
Excluding the volatile food and energy components, the PCE price index rose 0.4% after climbing 0.5% in January.
The so-called core PCE price index jumped 5.4% year-on-year in February, the biggest gain since 1983. The core PCE price index increased 5.2% in the 12 months to January.
The US Federal Reserve this month raised its policy interest rate by 25 basis points, the first hike in more than three years, and adopted a hawkish posture as it battles inflation.
Though inflation is eating into households' budgets, consumers are getting some cushioning from massive savings accumulated during the pandemic as well as rising wages amid a shortage of workers.
Still, high inflation is expected to cut into growth, with gross domestic product estimates for this quarter mostly below a 1.0% annualised rate. The economy grew at a 6.9% pace in the fourth quarter.
The scarcity of workers is keeping layoffs very low. In a separate report today, the Labor Department said initial claims for state unemployment benefits increased 14,000 to a seasonally adjusted 202,000 for the week ended March 26.
Economists polled by Reuters had forecast 197,000 applications for the latest week. Claims have declined from a record high of 6.149 million in early April 2020.
There were a near record 11.3 million job openings on the last day of February, government data showed earlier this week, which left the jobs-workers gap at 3.0% of the labour force and close to the post war high of 3.2% in December.
A third report from global outplacement firm Challenger, Gray & Christmas, showed US-based employers announced 21,387 job cuts in March, which was up 40.3% from February but down 30% compared to last year.
A quarter of the job cuts this month were because of store, unit, or plant closures. About 3,278 people were terminated for refusing to get vaccinated against Covid-19.
US employers also announced plans to hire 105,224 workers this month, led by the government, retailers and food manufacturers and suppliers.
"Some US employers report hiring is getting easier, particularly with the incentives many companies put in place to attract and retain talent," said Andrew Challenger, senior vice president at Challenger, Gray & Christmas.
"Meanwhile, inflation impacts and war concerns are causing workers who were depending on savings or investments to seek out paid employment," he added.
The government's closely watched employment report tomorrow is likely to show that non-farm payrolls increased by 490,000 jobs in March, according to a Reuters survey of economists. The US economy created 678,000 jobs in February.
The US unemployment rate is forecast falling a to a fresh two-year low of 3.7% from 3.8% in February.