Originally created 03/27/04

Consumer spending rises by 0.2 percent in February



WASHINGTON --Consumers, a key force shaping the economic recovery, were more restrained in February, increasing their spending by only 0.2 percent.

The over-the-month increase reported by the Commerce Department Friday came after consumers boosted spending by 0.5 percent in January, according to revised figures. That was slightly stronger than the 0.4 percent first estimated a month ago.

Even though the increase in spending in February fell short of the 0.5 percent rise that economists were forecasting, consumers have been keeping their wallets and pocketbooks sufficiently open to move along the economy's recovery, analysts say.

And, they say that tax refunds arriving in mailboxes during the spring may give consumers an incentive to spend more, juicing up economic growth.

Americans' incomes, meanwhile, rose by solid 0.4 percent in February, following a 0.3 percent increase the month before. Income growth - an important factor in peoples' ability to spend in the months ahead - was slightly better in February than the 0.3 percent increase that economists had been predicting.

The income and spending figures are not adjusted for price changes.

Consumer spending accounts for roughly two-thirds of all economic activity in the United States. That's why consumer behavior plays an important role in determining how vigorous the unfolding economic recovery will be.

In February, consumers trimmed spending on big-ticket "durable" goods, such as cars and appliances, by 0.2 percent, which was an improvement compared with the 3.2 percent spending cut reported for January.

Spending on "nondurables" such as food and clothes, inched up by 0.1 percent in February, down from a 1.8 percent jump the month before. Spending on services rose by 0.4 percent last month, following a 0.6 percent increase in January.

Consumers have continued to spend and power the recovery despite the sluggish job climate.

The economy added just 21,000 jobs in February - all of them in government - a Labor Department survey of payrolls showed. Job growth has been painfully slow even in the face of better economic activity.

Since President Bush took office in January 2001, the economy has lost 2.2 million jobs.

Presumptive Democratic presidential nominee John Kerry has pointed to this as evidence that Bush's economic policies are failing. Bush, who has defended his policies, wants Congress to make his tax cuts permanent, contending it would make the economy stronger and spur job growth.

Some economists worry that consumers might turn cautious if the lackluster job market persist, raising the risk of an economic slowdown in the second half of this year.

With income growth outpacing spending in February, the country's personal savings rate - savings as a percentage of after-tax income - rose to 1.9 percent, up from 1.8 percent in January.

Federal Reserve policy-makers have held a key interest rate at a 45-year low of 1 percent in an effort to motivate consumers to spend and help buttress the economic recovery.