US personal incomes jumped by the most in nearly a year, data on Friday showed, but economists cautioned the blow to consumer sentiment from the coronavirus could still weigh on consumption growth.

Personal income rose 0.6 per cent in January from the previous month, the commerce department said. That exceeded economists’ expectations for a 0.3 per cent increase and marked the biggest such gain since February last year.

However, personal consumption expenditures, or household spending, rose 0.2 per cent — its slowest pace since October — and missed forecasts.

The rise in incomes would ordinarily “be a good reason to expect consumption growth to accelerate over the next few months”, said Andrew Hunter, economist at Capital Economics, “but the likely hit to consumer confidence from virus fears and the stock market plunge poses a clear downside risk to that assumption”.

The Federal Reserve’s preferred inflation gauge remained soft. Core personal consumption expenditures, which strips out food and energy, rose 1.6 per cent from a year ago. However, the data do not reflect the impact of the coronavirus epidemic.

Inflation remains below the Fed’s 2 per cent target and, while the central bank was surprised by sluggish readings last year, it said it expected price pressures to pick up in 2020. However, the outbreak could prove a drag as oil prices have tumbled amid fears about the impact from the coronavirus to economic growth in China and globally as factories have been closed and supply chains disrupted.

Markets have priced in two interest rate cuts from the Fed this year as coronavirus fears have rattled through markets, even though the central bank has indicated no change to rates.



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