US consumer spending stalls
WASHINGTON (AFP) — US consumer spending stalled in February despite rising incomes as Americans boosted savings amid recession fears, according to government data released Friday.
A Commerce Department report showed a meager 0.1 rise in spending, the driver of growth in the world's biggest economy. The figure was the weakest since September 2006 and matched analysts' consensus forecast.
Incomes meanwhile rose 0.5 percent, the report showed.
Adjusted for inflation, consumer spending was flat in February amid a severe housing slump, rising food and energy prices, tightening credit and a drop in household wealth as home prices decline.
"Real spending will still probably be up slightly for the first quarter as a whole, but momentum has stalled. The picture looks very bleak until May, when stimulus tax rebates start to arrive, which should give some -- albeit temporary -- relief," said Nigel Gault, an analyst at Global Insight.
The 0.5 percent rise in incomes beat expectations of a 0.3 percent gain and was the strongest increase since July 2007.
But analysts pointed out that the jump mostly reflected government accounting adjustments.
After adjusting for inflation and taxes, real disposable income also increased in February, rising 0.3 percent after a 0.1 percent gain in January.
The Commerce Department left unrevised its January gains of 0.4 percent in spending and 0.3 percent in income.
A closely watched inflation gauge, the personal consumption expenditures (PCE) price index, showed consumer prices rose 0.1 percent in February. The headline increase included a 0.1 percent drop in the prices of non-durable goods.
The core PCE reading, which excludes volatile food and energy costs, also increased 0.1 percent, in line with expectations.
"When someone tells me that prices are barely budging I have to ask what planet they are referring to," said Joel Naroff at Naroff Economic Advisors.
Soaring record-high oil prices and surging food prices have pressured consumers to curb spending.
The personal savings rate rebounded to a plus 0.3 percent after a negative 0.1 percent in January and a zero rate in December.
Compared with February 2006, the core PCE index was 2.0 percent higher, slightly below the 2.1 percent forecasted. Year-over-year headline PCE inflation was up 3.4 percent.
Global Insight's Gault highlighted that the core PCE inflation rate had dipped back to 2.0 percent, at the top end of the Federal Reserve's comfort zone.
"The Fed is getting more concerned about inflation risks the lower it pushes interest rates, but this reading indicates that the Fed has room to cut further," he said.
The central bank has slashed its federal funds rate to 2.25 percent from 5.25 percent since September to stimulate sluggish economic growth and fight a spreading credit crisis.
Fed policymakers are scheduled to meet on April 29-30.
Naroff said the spending numbers appeared strong enough to produce positive spending in the first quarter, warding off recessionary pressures after gross domestic product (GDP) expanded a meager 0.6 percent in the 2007 final quarter.
"That could keep us from posting a negative GDP growth number," he said.
