U.S. consumer spending barely rose in January and income increased modestly in February, suggesting the economy was fast losing momentum after growth slowed in the fourth quarter of last year.

The report from the U.S. Commerce Department on Friday also showed price pressures muted in January, with a measure of overall inflation posting its smallest annual increase in nearly 2-1/2 years. The Federal Reserve last week brought its three-year campaign to tighten monetary policy to an abrupt end.

The U.S. central bank abandoned projections for any interest rate hikes this year after increasing borrowing costs four times in 2018, in a nod to the slowing economy, low inflation and rising headwinds to growth. The economy is losing steam as the stimulus from US$1.5 trillion in tax cuts as well as increased government spending dissipates.

“Unless some positive shock hits the economy, by the fall, we are likely to be back to where we were before the tax cut bill was passed,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, edged up 0.1 percent as households cut back on purchases of motor vehicles. Spending fell 0.6 percent in December.

Economists polled previously had forecast consumer spending increasing 0.3 percent in January. The release of the January consumer spending figures was delayed by a five-week partial shutdown of the federal government that ended Jan. 25.

When adjusted for inflation, consumer spending gained 0.1 percent in January after dropping 0.6 percent in December.

The weak consumer spending report extended the run of soft data ranging from housing starts to manufacturing that have flagged a sharp slowdown in growth early in the first quarter.

Gross domestic product forecasts for the first quarter are as low as a 0.9-percent annualized rate. The economy grew at a 2.2-percent pace in the fourth quarter after expanding at a brisk 3.4 percent rate in the July-September period.

But the Fed’s decision to shelve further monetary policy tightening could prop up the interest-rate-sensitive housing market. A second report Friday from the Commerce Department showed new home sales rose 4.9 percent to a seasonally adjusted annual rate of 667,000 units in February, the highest level since March 2018.

The housing market, however, accounts for a small fraction of the economy. A recovery in the sector, which hit a soft patch last year, will probably not be enough to blunt the impact on growth from slowing consumer spending and manufacturing.

A third report from the University of Michigan showed a rise in consumer sentiment in March. Economists, however, did not expect this to translate into stronger consumer spending as other confidence measures softened during the month.

(SD-Agencies)