European markets are on edge because of the looming US recession in spite of the strengthening euro.
Economic growth faces the additional threat of the euro’s gains to an all-time high against the dollar.
U.S. consumer spending, which accounts for more than two-thirds of the country’s gross domestic product, was flat in January for the second month in a row, when adjusted for inflation, the Commerce Department said. Other reports showed a decline in consumer confidence and diminished business activity in the U.S. heartland, the Midwest.
On an absolute level, Americans spent more last month, as spending outlays increased 0.4 percent after rising 0.3 percent in December.
But the products they bought were more expensive, too. Prices are rising rapidly; in January, they were up 3.7 percent in January compared with those a year ago, the fastest rate of growth in more than two years.
“Consumers are spending more dollars, but the extra spending is being wiped out by higher prices,” Nigel Gault, an economist at Global Insight in Lexington, Massachusetts, wrote in a research note.
Fear that the rising cost of fuel and food will prolong a recession and maintain high unemployment rates has prevented the interest rates from being reduced and thereby limits economic expansion.
