Does January Spending Spree Hint to What’s Ahead After Next Round of Stimulus Checks?

With another $600 in hand and a coronavirus pandemic waning, U.S. consumer spending increased by the biggest rate in seven months this past January, setting up the economy for even faster growth in the first quarter.

Despite the strong rebound in consumer spending reported by the Commerce Department on Friday, price pressures were muted. Inflation is being closely watched amid concerns from some quarters that President Joe Biden’s proposed $1.9 trillion COVID-19 recovery package could cause the economy to overheat, but optimism is growing.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, jumped 2.4% last month. That was the biggest gain since last June and ended two-straight monthly declines. Consumers bought motor vehicles, recreation goods, food and beverages. They also boosted spending on services such as hotel accommodations and restaurants, as well as doctor visits.

But elsewhere, personal income shot up 10%, which is the largest increase since last April, after rising 0.6% in December. When adjusted for inflation, consumer spending increased 2% last month after decreasing 0.8% in December.

Economists last week boosted their first-quarter GDP growth estimates to as high as a 6% annualized rate from as low as a 2.3% pace following January’s blowout retail sales data and indications that the White House’s massive stimulus package could be fully approved. These growth estimates could be raised even higher after the consumer spending report, as well.

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