By Harriet Torry
WASHINGTON -- Consumer spending in the U.S. picked up slightly
in January after a weak holiday season, while manufacturing started
the year on a decline, suggesting forces that slowed 2019 growth
continued at the start of this year.
Government and survey data released Friday showed consumers
remained upbeat, but the manufacturing industry was struggling.
"There seems to be this ongoing dichotomy between business and the
consumer sector," said Gregory Daco, an economist at Oxford
Economics.
Businesses reined in investment in three out of four quarters in
2019, and remained constrained by weak global growth, trade
tensions -- and now China's coronavirus outbreak that threatens to
upend global supply chains.
Industrial production, a measure of factory, mining and utility
output, decreased a seasonally adjusted 0.3% in January from the
prior month, the Federal Reserve said Friday. Utilities production
dropped 4% last month, as Americans cut back on energy consumption
during a warmer-than-usual January.
The halt in production of Boeing Co.'s 737 MAX airplane, which
started in January, led to a 7.4% decrease in the aerospace
industry's production last month. Economists expect Boeing's
troubles to affect first-quarter U.S. economic growth, along with
economic ripples from the coronavirus.
Consumers in the U.S. remained upbeat however. A University of
Michigan survey released Friday said the index of consumer
sentiment increased to 100.9 this month from 99.8 at the end of
January, close to the post-recession peak of 101.4 set in March
2018. The coronavirus was mentioned by just 7% of respondents when
asked about their economic expectations in early February.
Consumers are spending, too, after a weak holiday season. Retail
sales, a measure of purchases at stores, at restaurants and online,
increased a seasonally adjusted 0.3% in January from a month
earlier, the Commerce Department said Friday. That was the
strongest pace of growth since October, after December's holiday
retail sales were revised down slightly, to a 0.2% rise.
January was the fifth warmest for the month on record for the
U.S., according to the National Oceanic and Atmospheric
Administration.
Mild winter weather was a boon to consumer spending in certain
categories, such as home-improvement stores, restaurants and bars.
But it hurt spending in other categories, such as apparel, as
consumers held off on purchases of winter coats and boots. Clothing
sales dropped 3.1% from December, the largest month-over-month
decrease in that category since March 2009.
"Once you incorporate the utility effect, the [weather] impact
has probably been marginally negative" on overall consumer
spending, said Stephen Stanley, chief economist at Amherst
Pierpont.
Consumer spending is the main driver of the U.S. economy,
accounting for more than two-thirds of economic output. It rose at
a weak 1.8% annual rate in the fourth quarter of 2019, down from a
3.2% rate in the third quarter, and Friday's report offered few
signs that the pace of household outlays picked up meaningfully in
the first month of 2020.
Still, factors driving U.S. consumer spending remain positive.
Unemployment was a low 3.6% in January, and average hourly earnings
posted a 3.1% year-over-year gain, suggesting households have money
to spend.
"The economy is on stable ground," payroll-processing company
Automatic Data Processing Inc.'s Chief Executive Carlos Rodriguez
said during an earnings call on Jan. 29. Wage growth is "still at
robust levels and should drive continued consumer spending and
continued consumer confidence," he said.
Some retailers are circumspect about the prospects for 2020.
Macy's CEO Jeff Gennette said last week that while the economy is
still healthy, he is mindful "that it's not going to be as strong
as it was in the two previous years." U.S. gross domestic product
-- the value of all goods and services produced across the economy
-- grew 2.3% in 2019, slower than 2.9% in 2018.
On Jan. 15, the U.S. and China signed a trade deal in which the
U.S. agreed to cut tariffs on $120 billion in Chinese goods by
half, to 7.5%, and to forgo other planned tariffs. But the deal
leaves in place U.S. tariffs on about $370 billion in Chinese
goods, or about three-quarters of Chinese imports to the U.S.
January also saw the first confirmed cases of coronavirus in the
U.S., and in late January the U.S. imposed entry restrictions on
foreign nationals and quarantines on Americans returning from the
Chinese province at the center of the outbreak. While the number of
coronavirus cases in the U.S. remains small, the reverberations of
the outbreak have hit certain sectors, such as the U.S. tourism
industry, and disrupted some U.S. retailers' operations
overseas.
Ralph Lauren Corp. temporarily closed around two-thirds of its
mainland China stores over the past week due to coronavirus. The
fashion house said Thursday it would take a hit in its current
quarter of $55 million to $70 million in sales, and $35 million to
$45 million in operating income in Asia, due to the outbreak.
"The company also expects broader impact across its businesses
in China and parts of Asia due to significantly reduced travel and
retail traffic, " Ralph Lauren said.
Write to Harriet Torry at harriet.torry@wsj.com
(END) Dow Jones Newswires
February 14, 2020 14:22 ET (19:22 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.