Nominal consumer spending shot up by the most in a year in February.
Summary Consumers are primarily deploying their outlays in the service sector and that is problematic because it is disrupting progress in bringing down service price inflation. Amid spending surge, where's the incentive to lower prices? The days are getting longer and so is the wait for the Fed to lower interest rates. That is partly because consumer outlays have not been slowed by higher borrowing costs as evidenced by the 0.8% increase in nominal spending in February.
That is the biggest monthly jump in real services outlays since the wild summer of 2021 when consumers were still flush with pandemic-era savings and residual stimulus was still very much in play. Every category within services reported an increase in real spending. This is problematic for policymakers because as long as consumer keep splashing out in the service sector, the businesses that provide these services have no incentive to ease up on pricing.
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