Consumer spending grows

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WASHINGTON --- Confidence is growing that the economic recovery won't fizzle out. Consumers kept cash registers humming last month at a decent pace, pointing to modest and steady economic gains ahead.

The Commerce Department reported Monday that consumers boosted their spending by 0.3 percent in February, marking the fifth straight monthly gain.

Nigel Gault, chief U.S. economist at IHS Global Insight, called it "an encouraging sign of consumer revival."

The pickup in spending was a tad slower than the 0.4 percent increase registered in January and marked the smallest increase since September. Nonetheless, the spending gain was considered decent, especially given the snowstorms that slammed the East Coast and kept some people away from the malls.

"Households are starting to ease up on their tight grip on their wallets, though it would be nice if they had more money to spend," observed Joel Naroff, president of Naroff Economic Advisors.

Americans' incomes didn't budge.

Incomes were stagnant in February, as the bad weather forced employers to trim workers' hours. That followed a solid 0.3 percent gain in January and marked the weakest showing since July, when incomes actually shrank. Income growth is the fuel for future spending. February's flat-line reading suggests shoppers will be cautious in coming months.

Spending growth in February matched economists' expectations. The reading on income was a bit weaker than forecast.

Both the spending and income figures in Monday's report point to a modest economic recovery.

That cheered Wall Street investors. The Dow Jones industrial average gained 46 points to close at 10,896. The Dow hasn't traded above that level since September 2008.

Many analysts predict the economy slowed in the first three months of this year after logging a big growth spurt at the end of 2009.

The economy will expand at a 2.5 percent to 3 percent pace in the January-to-March quarter, analysts predict. That's roughly half the 5.6 percent pace seen in the final quarter of last year.

In normal times, growth in the 3 percent range would be considered respectable. But the nation is emerging from the worst recession since the 1930s. Sizzling growth in the 5 percent range would be needed for an entire year to drive down the unemployment rate, now 9.7 percent, by just 1 percentage point.

Unlike past recoveries, where consumer spending led the way, this one is hinging more on the spending of businesses and foreigners.

High unemployment, sluggish wage gains, hard-to-get credit and record-high home foreclosures are all expected to deter consumers from going on a spending spree - one of the main reasons why the pace of the recovery will be more subdued than in the past.

With spending outpacing income growth, Americans' savings dipped in February.

Americans saved 3.1 percent of their disposable income, down from 3.4 percent in January. It was the lowest reading on the savings rate since October 2008 and suggested that people have more of an appetite to spend.

Consumers increased their spending on "nondurable" goods, such as food and clothing, by 0.7 percent in February.

That was down from a 1.7 percent increase in January. They boosted spending on services by 0.3 percent, up from a 0.2 percent rise in January. But they cut spending on "durable" goods, such as cars and appliances, by 0.4 percent, not as deep as the 1.4 percent reduction in January.

Consumer spending accounts for the single-biggest slice of overall economic activity. That's why it is so closely watched by investors and economists.

So far in the current quarter, consumer spending is shaping up to be better than it was at the end of last year.
"U.S. consumers board recovery train," said Sal Guatieri, economist at BMO Capital Markets Economics.

For the entire January-to-March quarter, analysts think consumer spending will grow at a pace of around 3 percent.

That would mark an improvement from the 1.6 percent growth rate logged in the final quarter of last year and would be the biggest increase in three years.

Analysts are growing more confident that consumers will keep spending sufficiently into the coming months as the job market heals.

Economists predict that employers added around 190,000 jobs in March, in what they hope will be the start of consistent payroll gains. If they are right, it would mark the biggest jobs gain in three years. The unemployment rate is expected to stay at 9.7 percent for the third straight month.

The expected turnaround in job-creation would be welcome, but many economists say it will take at least until the middle of this decade for the situation to get back to normal, meaning a jobless rate of 5.5 percent to 6 percent. And, it will also take years for the economy to recover the 8.4 million jobs wiped out by the recession.


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