Yes, it was a good month for the US economy in terms of pumping money away on utilities like gas and electric. The Commerce Department said on Friday that consumer spending increased 0.2 percent compared with December — on par more or less with what most economists had predicted — and largely due to a surge in demand for utilities during the winter months. But while that statistic is being touted as a signal of the strengthening economy, other indicators suggest things are not as sound as they may seem.
Personal incomes plummeted in January, the new report adds, with that month’s drop of 3.6 percent being the most significantdownward change since January 1993 when Pres. Bill Clinton was justbeginning his first term in office. Coupled with a slight surge inspending, the latest news means Americans are largely spending moremoney than before while saving less.
The news comes only days after a study released by the websiteBankrate.com found that barely half of Americans have more money intheir savings account then they owe in credit card debt.
Yelena Shulyatyeva, an economist at BNP Paribas, New York, tellsReuters that this could be the start of something much moreserious. "We expect a significant decrease in real consumerspending in the first half of the year," says Shulyatyeva.Additionally, the economist says this could mean some underwhelmingnews for the GDP this quarter.
Speaking to the Associated Press, BMO Capital Markets senioreconomist Jennifer Lee says that a slight hike in taxes starting onthe first of the year is partially to blame for what could become aserious problem in the months to come. "The sting of highertaxes hit home at the start of the year. This will cool spending inthe next few months before consumers adjust to higherrates."
James Marple, a senior economist at TD Economics, adds in a USAToday report that, given the latest changes in tax rates andspending cuts, growth during the first half of 2013 is unlikely toexceed a rate of 2 percent.
"At this pace, the unemployment will not improve and pressurewill remain on the Federal Reserve to continue its asset purchaseprogram,” Marple said.
Earlier in the week, an analysis conducted by MSCI Inc.concluded that current economy-saving policies enacted by FederalReserve Chairman Ben Bernanke could cause the country’s centralbank to lose half atrillion dollars during the next three years.
January’s 3.6 percent decline in income growth comes after anincrease of 2.6 percent one month earlier, results that are typicalgiven the holiday shopping season.
