Consumer Spending in U.S. Climbs 0.8%, More Than Forecast

Consumer spending in the U.S. rose in February by the most in seven months, showing the biggest part of the economy is strengthening.

Purchases climbed 0.8 percent, the largest gain since July, Commerce Department figures showed today in Washington. The median estimate of economists surveyed by Bloomberg News called for a 0.6 percent increase. Incomes advanced less than projected, sending the saving rate to a more than two-year low.
Households may be poised to take a more active role in the expansion as the biggest payroll gains since 2006 underpin confidence. While wages are climbing, other forms of income like interest receipts are lagging behind, raising the risk that higher fuel costs will limit gains in consumer spending, which accounts for 70 percent of the economy.

“Consumers are spending a little bit more aggressively,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. “Consumers simply aren’t saving enough to sustain spending in the long run.”

Stock-index futures held earlier gains after the report, indicating the Standard & Poor’s 500 Index will extend its biggest first-quarter advance since 1998. The contract on the S&P 500 expiring in June rose 0.4 percent to 1,403.9 at 8:47 a.m. in New York.
Projections for spending in the Bloomberg survey of 83 economists ranged from gains of 0.1 percent to 0.8 percent.
Incomes Gain

Incomes climbed 0.2 percent for a second month after January’s gain was revised down. They were projected to increase 0.4 percent, according to the Bloomberg survey median.

Wages and salaries climbed 0.3 percent in February, while interest payments were little changed for a second month.

Income after taxes and adjusted for inflation declined 0.1 percent in February, the third decrease in the past four months. The decrease combined with the jump in spending pushed the saving rate down to 3.7 percent, the lowest level since August 2009, from 4.3 percent in January.

Adjusted for inflation, which are the figures used to calculate gross domestic product, consumer spending increased 0.5 percent, the most in five months.

Some consumers are becoming more optimistic. The Bloomberg Consumer Comfort Index last week reached the second-highest level in four years. Over the past three weeks, at least 30 percent of households said they had a favorable view of the buying climate, the longest stretch since early 2008.
Gaining Confidence

A firming labor market is helping household sentiment. The jobless rate held at a three-year low of 8.3 percent in February, and employers capped the best six months of employment since 2006, according to data from the Labor Department.

While job gains are lifting Americans’ spirits, higher gasoline prices remain a concern. The price of a gallon of regular unleaded gas was $3.93 as of March 29, up 65 cents since the end of last year, according to AAA, the nation’s largest automobile association.

“As we look to the second half of fiscal 2012, we are beginning to see some signs that the economy is slowly starting to improve,” Howard Levine, chairman and chief executive officer of Family Dollar Stores Inc. (FDO), said on a March 28 conference call. “Yet consumers still face some headwinds, especially from rising gas prices, which could strain discretionary purchases and impact the pace of the recovery.”

Federal Reserve Chairman Ben S. Bernanke shares those concerns when he spoke before Congress this month.
Bernanke’s View

“Higher energy prices would probably slow growth, at least in the short run,” Bernanke said March 21. Rising fuel costs create “short-term inflation pressures, and moreover, they act as a tax on household purchasing power and reduce consumption spending, and that also is a drag on the economy.”

Today’s report showed the Fed’s preferred price gauge, which is tied to consumer spending patterns, climbed 0.3 in February from the prior month. It was up 2.3 percent from the same time last year.

Fed policy makers set a goal to keep inflation at around 2 percent when they met in January.