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The numbers: Americans increased spending in January for the first time in three months after the government sent $600 stimulus checks to families and boosted unemployment benefits as part of effort to shore up the economy.
Consumer spending jumped 2.4%, the government said Friday, marking the biggest increase since last June.
Economists polled by Dow Jones and the Wall Street Journal has forecast a 2.5% increase.
Incomes rose by a much larger 10%. Washington approved $600 stimulus checks and raised unemployment benefits in December to help support a teetering economy after a record spike in coronavirus cases at the end of last year.
A key measure of inflation, meanwhile, climbed 0.3% last month. The so-called PCE price index is the Federal Reserve’s preferred measure of inflation.
The price gauge has risen 1.5% in the past year — up from 1.3% in the prior month — and is moving closer to the Fed’s 2% target.
Many economists predict inflation will surpass 2% once the pandemic fades and the U.S. recovers, but Fed officials contend any increase will be mild and temporary.
What happened: Consumers spent more on recreational vehicles, groceries, alcoholic beverages and a wide variety of goods.
An era of social distancing has spawned a dramatic change in how Americans spend. They are buying more goods and spending a lot less on services such as travel, dining out or even hair cuts.
Americans also bought more takeout food and even rented more hotel rooms in January. States began to ease restrictions last month as more people got vaccinated and coronavirus cases fell sharply.
Spending also increased on health care.
The shift in spending has spawned higher prices for some goods and lower prices for many services, but inflation has largely been absent during the pandemic.
Overall prices are starting to rise again, however. A separate “core” measure that strips out food and energy increased 0.3% last month. The core PCE has advanced 1.5% in the past 12 months.
The big picture: Consumer spending, the biggest contributor to U.S. economic growth, is likely to keep going up.
Massive government stimulus is a chief reason. The Biden administration is primed to send up to $1,400 in additional stimulus checks to American households as part of another major federal aid package.
Warmer weather and a rapid increase in coronavirus vaccinations should also give a boost to the economy by allowing hard-press businesses such as restaurants, hotels and amusement parks to serve more customers and bring back employees. More Americans will be also be willing to venture out and spend more on services.
Market reaction: Market reaction: The Dow Jones Industrial Average DJIA, -1.75% and S&P 500 SPX, -2.45% were set to open slightly higher in Friday trades.
