* Consumer spending up for fifth straight month
* Incomes flat as manufacturing payrolls fall
* Savings level lowest since October 2008
(Adds link to Breakingviews column)
By Lucia Mutikani
WASHINGTON, March 29 U.S. consumers tapped
their savings in February to keep spending on an upward path
for a fifth straight month, implying that consumption may be
strong enough in coming months to keep a recovery going.
The rise in spending despite flat incomes in February
suggests households were becoming positioned to pick up the
baton from the government and a spate of inventory-rebuilding
as the prime drivers of growth.
"Consumers are getting more comfortable, which is an
essential ingredient for a sustainable recovery. The Federal
Reserve should be pleased to see steady spending growth, but
will not raise rates until the job picture improves," said
Chris Low, chief economist at FTN Financial in New York.
Spending increased 0.3 percent last month after rising 0.4
percent in January, the Commerce Department said on Monday. The
gain was in line with market expectations. Spending normally
accounts for about 70 percent of U.S. economic activity.
Debt-stricken Greece's auction of seven-year bonds
contributed to a fall in the U.S. dollar against the euro.
Dollar weakness, in turn, boosted commodity prices, lifting
U.S. stocks to a higher finish. In the bond market, the yield
on the 30-year government bond jumped to a nine-month high.
Lackluster spending has raised worries the economic
recovery from the worst downturn since the 1930s that started
in the second half of 2009 could loose steam when government
stimulus and the lift from inventories wanes.
Analysts said the steady rise in spending over the last
five months supported views the labor market was turning, with
payrolls expected to grow in March.
"It may be the sort of leading indicator of job gains in
the sense that things are happening out there that consumers
have confidence to spend even though the top line employment
numbers haven't been that supportive," said Kurt Karl head of
economic research at Swiss Re in New York.
JOB GROWTH EYED
A Reuters survey forecast the closely watched employment
report due on Friday to show employers added 190,000 jobs after
cutting 36,000 positions in February, largely driven by hiring
for the 2010 census.
This would mark only the second time payrolls have
increased since the recession started in December 2007. The
health of the labor market will determine when the Fed will
start raising benchmark interest rates, currently near zero.
Treasury Secretary Timothy Geithner told CNBC the economy
was getting stronger and close to sustainable job growth.
"The economy is getting stronger, we are probably just on
the verge now of what we think to be a sustained period of job
creation, finally, and we are going to continue reinforce that
recovery," Geithner said.
Spending adjusted for inflation rose 0.3 percent last
month, the Commerce Department said, adding to a 0.2 percent
gain in January.
"The increase in both nominal and real spending suggests
that real consumption is on course to grow at an annualized
rate of around three percent in the first quarter," said Paul
Dales, a U.S. economist at Capital Economics in Toronto.
"That would be enough to add one percentage point to
first-quarter GDP growth relative to the fourth."
Consumer spending rose at a modest 1.6 percent rate in the
fourth quarter, slowing from 2.8 percent in the prior period,
according to a government report on Friday.
However, analysts still worry employment growth may not be
robust enough and wages will continue to increase modestly,
limiting the rise in spending.
Analysts reckon spending last month was lifted by
households dipping into their saving as well as sturdy gain in
share prices. Savings fell to an annual rate of $340 billion,
the lowest level since October 2008.
The saving rate slipped to 3.1 percent, also the smallest
rate since October 2008, from 3.4 percent the prior month.
Personal income was flat last month following January's 0.3
percent rise, the Commerce Department said. Payrolls of
goods-producing industries fell $3.5 billion in February after
increasing $5.2 billion, while manufacturing slipped $1.4
billion following a $5.0 billion gain.
This probably reflected the winter storms that struck parts
of the country and kept some hourly paid workers at home.
Real disposable income was flat last month after falling
0.4 percent in January.
Graphic on consumer spending link.reuters.com/huq65j
Breakingviews Column [ID:nN29251971]
(Editing by Kenneth Barry)