US consumers step up spending

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Washington - US consumer spending increased in February, but a dip in sentiment this month offered confirmation that economic growth slowed in the first quarter.

The Commerce Department said on Friday that consumer spending rose 0.3 percent last month after gaining 0.2 percent in January.

Last month's increase in consumer spending, which accounts for more than two-thirds of US economic activity, matched economists' expectations.

While that rise indicated the economy was regaining strength after being chilled by unusually bad weather, growth this quarter remains sluggish and households have felt the impact.

A second report on Friday showed the Thomson Reuters/University of Michigan's consumer sentiment index dipped to 80.0 in March from 81.6 in February.

The index was little changed from earlier this month.

“Current conditions in the overall economy were reported by consumers to have recently weakened,” survey director Richard Curtin said.

A combination of bad weather, a slow pace of inventory accumulation by businesses, the expiration of long-term unemployment benefits and cuts to food stamps is expected to hold back economic growth to an annualized pace of around 2 percent in the first quarter.

But a rebound is expected as these factors fade.

The economy grew at a 2.6 percent rate in the fourth quarter.

US financial markets were little moved by the data as investors digested remarks by Chinese Premier Li Keqiang that his government was ready to support China's cooling economy.

SERVICES SPENDING UP

US consumer spending in February was lifted by an increase in services consumption, likely because of increased demand for health care and utilities.

When adjusted for inflation, spending rose 0.2 percent.

January's real consumer spending was, however, revised to show a 0.1 percent gain instead of a 0.3 percent jump.

This measure goes into the calculation of gross domestic product, and January's revision suggested consumer spending cooled this quarter after logging its fastest pace in three years in the final three months of 2013.

“The consumer did go into hibernation this winter, but we expect consumers to be out in full force now that spring is upon us, boosting GDP in the second quarter,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.

Income rose 0.3 percent last month after rising by the same margin in January.

It continues to be supported by government transfers for healthcare payments, which offset the drag from the expiration of the long-term unemployment benefits.

Income at the disposal of households after adjusting for inflation rose 0.3 percent.

The saving rate, which is the percentage of disposable income households are socking away, rose to 4.3 percent last month from 4.2 percent in January.

There were few signs of inflation pressure in February.

A price index for consumer spending edged up 0.1 percent for a second straight month in February.

Prices in February rose 0.9 percent from a year ago, compared to a 1.2 percent advance in January over the previous 12 months.

February's increase was the smallest since October.

Excluding food and energy, the price index for consumer spending rose 0.1 percent for an eighth straight month.

Core prices were up 1.1 percent from a year ago, after rising by the same margin in January.

Both inflation measures remain stuck below the Federal Reserve's 2 percent target.

That suggests the Fed, which is expected to wrap up its monthly bond purchases by the end of 2014, will only gradually raise interest rates when it starts tightening monetary policy.

“The subdued tone in inflation is likely to keep concerns about the lingering inflationary thrust going, and if this persists it is likely to keep any consideration of near-term rate hikes at bay,” said Millan Mulraine, deputy chief economist at TD Securities in New York. - Reuters


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