The harsh winter storms and bitter cold in February caused consumer spending to drop by the most in 10 months. American households cut spending by 1% last month --- that was steeper than economists had forecast.
It marked the largest decline since April 2020, when businesses shut down at the start of the health crisis.
Also contributing to the drop: the boost from a second round of stimulus checks had faded.
Americans also had less to put into their wallets. Personal income tumbled 7.1% last month following a surge in January. As a result, consumers spent less across the board. They especially cut back on pharmaceutical products and recreational goods. They also spent less on dining.
But look for consumption to rebound this month. Warmer weather, a new round of stimulus checks and increased vaccinations will likely unleash pent-up demand.
Invesco Chief Global Market Strategist Kristina Hooper:
“We have far more fiscal stimulus than we had during the global financial crisis. We have fed support mean extraordinary monetary policy, support and of course we have in the offing. The broad distribution of vaccines which should trigger a strong economic recovery and let us not forget elevated household savings and pent up demand. So to me, that's a combination that should propel the economy higher.”
Economists expect an acceleration in growth. They see the economy expanding by as much as 7.5% this quarter …. and possibly topping 7% for the year. That would be the fastest annual rate since 1984.