US Consumer Spending Increases At Its Slowest Rate In 12 Months: Analysis

A combination of permanent and temporary factors cut the growth in U.S. consumer spending in February to its lowest rate in 12 months, First Data Corporation said Tuesday.

Retail dollar volume growth fell significantly in February to 2.5 percent compared to January’s growth of 5.7 percent as consumers tightened their discretionary spending budgets, the Atlanta-based firm said.

“The combination of elevated taxes, federal tax refund delays, adverse weather and higher gasoline prices clearly curbed shoppers’ ability and willingness to shop in February,” said Rikard Bandebo, vice president and economist at First Data. “The fact that the personal savings rate significantly declined in January and consumers shifted more spending onto credit cards could be a sign that consumers may be overstretched."

Dollar volume growth slowed to 4.6 percent, year-over-year, compared to January’s growth of 6.2 percent.

Most retail subcategories posted slower dollar volume growth. Retail transaction growth of 0.4 percent marked the slowest growth over the past year and was a substantial slowdown from January’s growth of 2.7 percent.

Despite the downturn, First Data said there were indications that the growth rate in consumer spending, which drives nearly 70 percent of U.S. economic activity, will soon increase. Specifically, the company cited an improving labor market, steadily rising home values, healthy gains in the equity markets and the federal budget sequestration.