U.S. consumer spending rose marginally for a second straight month in February as households boosted savings, the latest indication that the economy lost momentum in the first quarter.
But, according to a Reuters report, the economy’s fundamentals remain strong, with other data on Thursday (March 29) showing the number of Americans filing for unemployment benefits dropping to more than a 45-year low last week. A tightening labor market is expected to start driving up wages by the second half of this year.
Consumer spending has been tepid this year despite strong consumer confidence, which has been bolstered by income tax cuts. Some economists said the tax cuts, which came into effect in January, only reflected on most workers’ paychecks in late February. They also believed that delays in processing tax refunds had contributed to holding back spending.
“The outlook for spending on discretionary categories is obviously more uncertain, though there are some plausible reasons to expect better consumption outcomes ahead,” said Michael Feroli, an economist at JPMorgan in New York.
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