March 2, 2009 / 1:40 PM / 8 years ago

Consumer spending, incomes rebound in January

<p>A shopper passes a store while walking through the SoHo neighborhood of New York, December 23, 2008.Lucas Jackson</p>

WASHINGTON (Reuters) - U.S. consumer spending rebounded in January, snapping six months of declines, and incomes rose unexpectedly, boosted by salary increases for government employees, a government report showed on Monday.

But the gains in January are likely to be temporary as wages and salaries continue to fall amid a deepening recession.

The Commerce Department said spending rose 0.6 percent, the largest increase since May, after falling an unrevised 1 percent in December, and beating economists' expectations for a 0.4 percent advance.

Incomes advanced 0.4 percent, also posting the biggest increase since May, after December's 0.2 percent decrease, and above market expectations for the a 0.2 percent decline.

U.S. equity index futures pared losses, while U.S. Treasury debt prices trimmed gains after the data. The U.S. dollar pared gains versus euro.

The department attributed to rise in incomes to pay raises for federal civilian and military employees, as well as cost-of-living adjustments to several government transfer payments programs. It said excluding these factors, incomes increased by 0.2 percent in January.

"The income numbers were certainly higher than expected, but a lot of that was the Social Security payment adjustment," said Scott Brown, chief economist, Raymond James & Associates in St. Petersburg, Florida.

"There was a big increase in the savings rate to 5 percent. It is good that people save but it is not good that everybody saves at the same time. That makes the current downturn more severe and long lasting."

Savings jumped to an annual rate of $545.5 billion, the highest level since monthly records began in 1959. The saving rate surged to 5 percent in January, the biggest advance since March 1995, as households uncertain about the economy prefer to conserve their cash.

Data last week showed the U.S. economy shrank at a 6.2 percent annual rate in the fourth quarter, the deepest contraction since early 1982, when it was in the throes of recession that lasted 16 months.

Consumer spending, which accounts for more than two-thirds of economic activity, declined at 4.3 percent rate in the fourth quarter, the biggest drop since the second quarter of 1980.

Reporting by Lucia Mutikani; Editing by Neil Stempleman

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