The numbers: Consumer spending rebounded in January and increased a sharp 2.1% as omicron faded and Americans bought more new cars and recreational goods, reflecting a small upturn in the U.S. economy early in the new year.
Economists polled by The Wall Street Journal had forecast 1.6% gain. Spending had fallen in December for the first time in 10 months.
The increase in spending was still robust, government figures showed, even if inflation is taken into account: 1.5%.
Incomes were flat in January.
Big picture: The economy has gotten off to an uneven start this year after ending 2021 on a downswing.
Households are spending plenty of money and businesses are awash in demand for goods and services. Yet high inflation and persistent shortages of labor and supplies are holding the economy back. The PCE price gauge favored by the Fed surged again in January.
New headwinds are also emerging. The Federal Reserve is preparing to raise interest rates for the first time in four years while the Russian invasion of Ukraine threatens to exacerbate inflation due to higher oil prices.
Key details: Americans bought more new cars and trucks in January as well as recreational goods. Spending on goods was particularly strong last month as consumers shied away from services such as dining out due to omicron and government restrictions.
On the downside, they also paid for housing, rent and utilities. The cost of shelter has risen sharply in recent months and a cold snap raised energy bills.
Looking ahead: “Overall, the real economy appears to be in stronger health than we feared,” said chief U.S. economist Paul Ashworth of Capital Economics.
“Never underestimate the American consumer,” said senior economist Jennifer Lee of BMO Capital Markets.
Market reaction: The Dow Jones Industrial Average
DJIA,
and S&P 500
SPX,
were set to open slightly higher in Friday trades. Stocks have tumbled this week because of the crisis in Ukraine.
