Consumer Spending Drops in January

U.S. consumer spending took its biggest drop in more than three years in January as winter storms, the partial federal government shutdown and sluggish income growth restrained demand, the government reported Monday.

Weaker spending on big-ticket goods such as home appliances accounted for much of January’s 0.5% decrease, Commerce Department figures show. Analysts had expected no change from the previous month.

Consumer spending is likely to remain subdued in the first half of the year because “we haven’t had a lot of income growth and household debt has been rising,” said Cynthia Latta, an economist at DRI/McGraw-Hill in Lexington, Mass.

That came through in the January report: Personal income rose just 0.1% in January, even after accounting for pay raises for civil servants and the military and annual cost-of-living adjustments for federal subsidy programs.

Stocks and bonds soared because the report suggests that the Federal Reserve Board has room to lower interest rates this year if other signs of weakness in the economy persist, analysts said. Fed policymakers next meet on March 26.

Although the weak economy has hurt retail sales and forced stores to offer hefty discounts, the January blizzard took its toll, Latta said. “People were digging out instead of going to the mall to buy furniture,” she said.

As a result, Americans managed to save more money. The savings rate climbed to 5.3% in January--the highest since December 1993, the government said.

The Commerce Department also said spending increased 0.9% in December while incomes rose 0.6% and the savings rate declined to 4.6%.

Release of both the December and January figures was delayed by the partial shutdown of federal agencies. The shutdown itself also acted to dampen spending by federal employees and those in private industry who depend on government contracts.

Still, to some economists, the December figures hint at underlying strength that will blossom in the spring--especially with the rise in savings. “We had some building momentum as the year came to a close,” said William Sullivan, an economist at Dean Witter Reynolds in New York. “No doubt the inclement weather held spending in check.”

In financial markets, government bonds fell after the report’s release, then rebounded.

The yield on the benchmark 30-year government bond fell 0.03 percentage point to 6.33%.

Analysts had expected no change in spending for January and a 0.1% rise in incomes, according to a Bloomberg Business News.