US consumer spending rises in February

US consumer spending rises in February
By Alan Rappeport in New York
Copyright The Financial Times Limited 2009
Published: March 27 2009 13:21 | Last updated: March 27 2009 14:41
http://www.ft.com/cms/s/0/bab4794c-1ad0-11de-8aa3-0000779fd2ac.html


US consumers upped their spending for the second month running in February as prices rose, but concerns over falling incomes left the savings rate near last month’s 14-year high.

Personal consumption expenditure rose by 0.2 per cent, in line with economists’ expectations, according to commerce department figures released on Friday. The February rise followed a revised 1 per cent increase in January, which broke a record streak of six consecutive declines.

Economists expect that consumer spending could increase by an annual rate of 1 per cent in the first quarter of this year after falling by 4 per cent during the second half of last year. Recent figures showed that retail sales have stabilised during the last two months, falling by 0.1 per cent in February after jumping by 1.8 per cent in January.

Incomes fell back in February, with personal income declining by 0.2 per cent for the second consecutive month. The drop was largely due to rising job cuts, pay freezes and eliminated bonuses.

The commerce department’s closely watched gauge of prices rose 0.3 per cent in February, the same rate as in January, and showed a 0.2 per cent increase excluding food and energy for the second month running. Year-on-year core prices are up 1.8 per cent.

That should ease fears that the US downturn could lead to a deflationary trap. The labour department’s February consumer price index rose by 0.4 per cent on higher energy prices.

Meanwhile the savings rate, which is measured as the proportion of income left after spending and taxes, slipped from 4.4 percent to 4.2 per cent in February, retreating slightly from a 14-year high.

Consumers have curtailed spending in recent months as the economic recession has deepened. Earlier this month the Federal Reserve said that the net worth of US households plunged 18 per cent last year and 9 per cent last quarter, the biggest drops since tracking began in 1946.

“The US consumer is faced with daunting fundamentals,” said Joshua Shapiro, chief US economist at MFR. “Wage and salary income is declining, credit is very tight, home prices continue to fall, financial asset values have been decimated, and household balance sheets are extremely stressed.”

Such conditions kept consumer sentiment, as reported on Friday by the University of Michigan’s index, depressed this month. Sentiment rose to 57.3 in March from a revised 56.3 the prior month, in a reading that was slightly more optimistic than analysts expected. The index, produced jointly with Reuters, bottomed at 51.7 in 1980.

Falling incomes and dim sentiment reflect the impact of the deteriorating employment situation. In February the unemployment rate jumped from 7.6 per cent to 8.1 per cent, its highest level since 1983, as the number of jobs lost reached 651,000. Economists expect that another 700,000 jobs could be lost this month and that the official employment report next week could show the jobless rate reaching 8.5 per cent.

Feelings about current conditions slipped this month but expectations ticked up, as consumers took hope from rebounding equity markets. The S&P 500 is on course for its biggest monthly gain since 1987.