February personal spending posts largest gain in 7 months

WASHINGTON Fri Mar 30, 2012 8:51am EDT

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WASHINGTON (Reuters) - Consumer spending in February increased by the most in seven months even as income rose modestly, which could prompt analysts to scale back expectations of a sharp pull back in economic growth this quarter.

The Commerce Department said on Friday consumer spending rose 0.8 percent, as households probably stepped up purchases of motor vehicles, despite a spike in gasoline prices.

January's spending was revised up to 0.4 percent from a previously reported 0.2 percent gain. Economists polled by Reuters had expected spending, which accounts for two-thirds of U.S. economic activity, to rise 0.6 percent last month.

When adjusted for inflation, spending rose 0.5 percent, the largest gain since September, after gaining 0.2 percent in January. That could cause analysts to raise their forecasts for 2 percent first-quarter growth.

The economy expanded at an annual rate of 3 percent in the final three months of 2011 as it got a boost from restocking by businesses, a stimulus that is expected to be lost this quarter.

Consumer spending rose at a 2.1 percent rate in the fourth quarter and last month's increase suggested consumers were taking surging gasoline prices in stride, and saving less to supplement their low income.

Spending on goods meant to last more than three years rose 1.6 percent in February after advancing 1.4 percent the prior month. Spending on services rose 0.4 percent. Unseasonably warm weather had curbed demand for utilities in the prior months.

Last month income edged up 0.2 percent after rising by the same margin in January. The increase was below economists' expectations for a 0.4 percent rise.

Taking inflation into account, the amount of income available to households after accounting for taxes and inflation, fell 0.1 percent after declining 0.2 percent in January.

With consumption outpacing income, the saving rate dropped to 3.7 percent, the lowest rate since August 2009.

The report showed mild inflation pressures, which should help to support spending.

A price index for personal spending rose 0.3 percent in February after increasing 0.2 percent the prior month. In the 12 months through February, the PCE index was up 2.3 percent. It increased 2.4 percent in January.

A core inflation measure, which strips out food and energy costs, edged up 0.1 percent last month after rising 0.2 percent in January. In the 12 months through February, core PCE rose 1.9 percent after increasing by a similar margin in January.

The Federal Reserve would like this measure close to 2 percent.

(Reporting By Lucia Mutikani; Editing by Neil Stempleman)

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Comments (2)
DetroitNative wrote:
What worries me is that there is no mention of how much of this increase in spending is due to gas costs. The market incorrectly assumed in 2008 that the consumer would be able to weather $4 a gallon gas without any problem. So now that we’re poised to hit $5 they are predicting an uptick in economy? Have we learned nothing from the not so distant past? Consumer/household debt is on the rise, gas prices are at an all time high, and food costs are weighing in this time as well. Alarm bells should be going off….

Mar 30, 2012 8:56am EDT  --  Report as abuse
jaham wrote:
Americans are back to their old ways: increasing spending at twice the clip that their earnings increase. While this may be a short-term boon to the economy, this is the type of reckless, debt-fueled consumerism that lead us to the edge of the abyss.

We need structural tax and regulatory reform, increased infrastructure spending and business enivronment certainty, among other things, to make America the most attractive place for business investment and capital deployment. Only then will organic job growth abound and true wage growth ensue.

Mar 30, 2012 9:00am EDT  --  Report as abuse
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