US consumer spending rises

US consumer spending increased by the most in seven months in February as households shook off a rise in petrol prices, suggesting the economy may not have slowed as much this quarter as economists had thought.

The Commerce Department said today consumer spending rose 0.8 per cent as spending on long lasting goods, like cars, rose sharply. January's spending was revised up to 0.4 per cent from a previously reported 0.2 per cent gain.

Economists polled by Reuters had expected spending, which accounts for two-thirds of US economic activity, to rise 0.6 per cent last month.

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

The economy expanded at an annual rate of 3 per cent 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 per cent 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.

Earlier this week, Wal-Mart Stores said US sales in the last two months had withstood rising petrol prices and a tough economy that worried many of its shoppers.

In the Commerce Department report, spending on goods meant to last more than three years rose 1.6 per cent in February after advancing 1.4 per cent the prior month. Spending on services rose 0.4 per cent. Unseasonably warm weather had curbed spending on utilities in the prior months.

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

Taking inflation into account, the amount of income available to households after accounting for taxes and inflation, declined for a second month.

With spending outpacing income, the saving rate dropped to 3.7 per cent, the lowest rate since August 2009. Savings slowed to an annual rate of $438.7 billion, the smallest level since October 2009, from $509.5 billion in January.

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

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

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

The Federal Reserve would like this measure close to 2 per cent.

Reuters