economic indicators

Consumer spending in U.S. increases by most in 5 months

U.S. CONSUMER SPENDING increased by the most in five months in February.
Posted 3/29/13

WASHINGTON - Consumer spending in the U.S. climbed in February by the most in five months as incomes rose, signaling an improving job market is spurring demand.

Household purchases, which account for about 70 percent of the economy, gained 0.7 percent after a 0.4 percent advance the prior month that was bigger than previously estimated, a Commerce Department report showed today in Washington. The median estimate in a Bloomberg survey of 78 economists called for a 0.6 percent rise. Incomes increased 1.1 percent, more than projected, sending the saving rate up from a five-year low.

Labor market progress and an increase in household wealth linked to rising home values and stocks are helping Americans cushion the fallout of higher payroll taxes and costlier fuel. Strength in purchases is one reason economists project the economy picked up this quarter after slowing to a 0.4 percent annual rate in the final three months of 2012.

“The U.S. outlook is encouraging,” Nigel Gault, chief U.S. economist for IHS Global Insight in Lexington, Massachusetts, said before the report. “There are some temporary setbacks but once we get past them, the economy will accelerate.”

Projections for spending ranged from gains of 0.3 percent to 0.9 percent. The January reading was previously reported as an increase of 0.2 percent.

The Bloomberg survey median called for incomes to rise 0.8 percent. The gain in February followed a 3.7 percent drop the prior month that reflected, in part, the 2 percentage-point increase in the payroll tax.

More saving

The saving rate increased to 2.6 percent from 2.2 percent in January, the lowest since August 2007. Wages and salaries climbed 0.6 percent after falling 0.6 percent. Figures for both months were reduced by $15 billion at an annual rate reflecting the impact of the accelerated bonuses paid out last year before tax rates climbed.

Disposable income, or the money left over after taxes, rose 0.7 percent after adjusting for inflation. It dropped 4 percent in the prior month.

Adjusting consumer spending for inflation, which renders the figures used to calculate gross domestic product, purchases rose 0.3 percent for a second month, today’s report showed.

An index of prices tied to spending patterns increased 1.3 percent from February 2012, the same as in January. Federal Reserve policy makers have set a goal of keeping inflation around 2 percent.

The so-called core measure, which excludes food and fuel costs, rose 0.1 percent from the prior month.

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