(Adds details, new analyst comments)
* Consumer spending rises 0.3 percent in February
* Income rises 0.3 percent, inflation remains muted
* Consumer sentiment slips in March
By Lucia Mutikani
WASHINGTON, March 28 U.S. consumers stepped up
spending a bit in February as incomes increased for a second
straight month, offering hope the economy was regaining its
footing after being slammed by an unusually cold winter.
The data from the Commerce Department on Friday took the
sting out of a separate report that showed consumer sentiment
dipped in March. Economists said they expected household morale
to perk up with warmer weather in the spring.
"So the winter may have slowed things temporarily, but with
consumers still spending and incomes rising, we should see solid
growth in the months ahead," said Joel Naroff, chief economist
at Naroff Economic Advisors in Holland, Pennsylvania.
Consumer spending rose 0.3 percent last month after a
downwardly revised gain of 0.2 percent in January.
Separately, the Thomson Reuters/University of Michigan's
consumer sentiment index dipped to 80.0 in March from 81.6 in
February. It was little changed from a preliminary reading
earlier this month.
A combination of bad weather, an effort by business to work
off bloated inventories, the expiration of long-term
unemployment benefits and cuts to food stamps is expected to
hold back growth to around a 1.5 percent annual pace in the
But a rebound is expected as those factors fade. The economy
grew at a 2.6 percent rate in the fourth quarter.
U.S. financial markets were little moved by the data as
investors digested remarks by Chinese Premier Li Keqiang that
his government was ready to support China's cooling economy.
SERVICES SPENDING UP
Consumer spending, which accounts for more than two-thirds
of U.S. economic activity, was bolstered by a rise in outlays
for services, likely because of higher demand for health care
When adjusted for inflation, spending rose 0.2 percent, but
January's gain was just 0.1 percent, not the more-robust 0.3
percent increase reported a month ago.
The revision suggested spending cooled this quarter after
logging its fastest pace in three years in the final three
months of 2013.
Goldman Sachs lowered its first-quarter GDP growth estimate
by one-tenth to a 1.5 percent rate, while forecasting firm
Macroeconomics Advisers cut its forecast by two-tenths to a 1.3
"With the downward revision to real spending in January, the
contribution from consumption is likely to be more modest than
previously thought," said Millan Mulraine, deputy chief
economist at TD Securities in New York.
Income rose 0.3 percent last month after rising by the same
margin in January. It continues to be supported by government
transfers for healthcare payments, which offset the drag from
the expiration of the long-term unemployment benefits.
The saving rate, which is the percentage of disposable
income households are socking away, rose to 4.3 percent from 4.2
percent in January.
There was little sign of inflation.
A price index edged up 0.1 percent for a second straight
month, and was up just 0.9 percent from a year ago. That marked
a slowdown from January's 1.2 percent year-on-year advance and
was the smallest 12-month gain since October.
Excluding food and energy, prices rose just 0.1 percent for
an eighth straight month, keeping the 12-month gain capped at
1.1 percent, the same as in January.
Both measures remain stuck well below the Federal Reserve's
2 percent target, providing ample scope for the central bank to
move slowly in raising interest rates. The Fed plans to wrap up
a bond-buying program later this year, but it is not expected to
move rates higher until sometime in 2015.
"The persistence of extremely weak inflation is cause for
concern and will continue to be a focus of the Fed," said Diane
Swonk, chief economist at Mesirow Financial in Chicago.
(Reporting by Lucia Mutikani; Additional reporting by Ryan
Vlastelica; Editing by Tim Ahmann and Paul Simao)