U.S. consumer spending, long a mainstay of the economy, slid unexpectedly in January as shoppers took home fewer long-lasting durable goods, the government said on Monday. The Commerce Department said consumer spending dipped 0.1 percent, its first drop since September of last year, after a gain of 1.0 percent in December. Personal incomes in January rose by 0.3 percent.
Within the Commerce Department report, spending on durable goods — items meant to last a minimum of three years — fell 5.7 percent, their biggest decline since a 6.0 percent drop in February 1990. In December, spending on durable goods zoomed up 6.8 percent, aided by financial incentives for auto sales. Spending on services rose 0.4 percent, up from a 0.1 percent gain seen in December, while purchases of non-durable goods rose 1.3 percent, compared with a 0.4 percent increase seen in the previous month.
Consumers appeared to use their pause in spending as an opportunity to build up their savings. The saving rate, the percentage of disposable income left over after expenses, rose to 4.3 percent in January from 3.9 percent. In 2002, personal saving stood at 3.9 percent, its highest annual level since 1998.
Wednesday we got the beige book. “The beige book is here, the beige book is here!” It basically said that the U.S. economy remained weak in the first months of 2003, dampened by uncertainty over the economic outlook and possible war with Iraq. “Reports from the 12 Federal Reserve Districts generally suggested that growth in economic activity remained subdued in January and February,” the Fed said. (Duh, I could have told them that. 😉 They also said that consumer spending was generally weak. Some areas noted small improvements, offset by deterioration in other regions. Also, business spending also remained weak. Worries about the future hurt hiring and spending plans, and capital expenditures remained sluggish, the Fed said.
On Friday, the Labor Department said payrolls outside the farm sector plunged 308,000 in February — the biggest decline since a 327,000 drop in November 2001. The data sent the U.S. dollar spiraling to four-year lows against the euro. Some have said that the slide in payrolls may be due to the callup of U.S. military reserves and the harsh northeast winter. Also, the unemployment rate rose to 5.8 percent in February from 5.7 percent in January.
Well, the good news is that our stock market isn’t in the same shape as Japan’s. Japanese stocks fell to fresh 20-year lows on Monday. Even if you think our stocks are overpriced currently, a 20 year low would put us back to 1983 levels. So imagine the Dow at 1000 and the S&P at 150. Now that would be an economic problem!