Consumer spending, income jump in February
Consumers stepped up spending in February after their income jumped, aided by a stronger job market that offset some of the drag from higher taxes. The gains led economists to predict stronger economic growth at the start of the year.
Consumer spending rose 0.7 percent in February from January, the Commerce Department reported on Friday. It was the biggest gain in five months and followed a revised 0.4 percent rise in January, which was double the initial estimate.
Americans were able to spend more because their income rose 1.1 percent last month. That followed huge swings in the previous two months, which reflected a rush to pay bonuses and dividends in December before taxes increased.
After-tax income also increased 1.1 percent last month, allowing consumers to put a little more away.
The saving rate climbed to 2.6 percent of after-tax income, up from 2.2 percent in January.
The gains in spending and income follow other signs of an economy gathering momentum. Hiring is up, businesses are spending more, the stock market is hitting record levels and the housing recovery is strengthening.
More spending by consumers should boost economic growth in the January-March quarter after a lull at the end of last year. Consumer spending accounts for 70 percent of economic activity.
After seeing Friday's report on consumer spending, Paul Ashworth, chief U.S. economist at Capital Economics, raised his growth forecast for the first quarter by a full percentage point. Ashworth now expects growth in the January-march quarter increase to an annual rate of 3 percent.
Growth at that pace would be a vast improvement from the 0.4 percent rate in the October-December quarter, which was held back by slower company stockpiling and the sharpest defense cuts in 40 years.
Ashworth called the boost in spending “impressive,” noting that consumers spent more while having to adjust to the higher Social Security taxes and a spike in gasoline prices.
“We're now likely to see the fastest quarterly gain in real consumption in two years,” he said.
Jennifer Lee, senior economist at BMO Capital Markets, said the increases suggest consumer spending could be growing in the first quarter at an annual rate of more than 3 percent. That would be the fastest gain in more than three years and more than double the 1.3 percent rate in the fourth quarter.
Inflation, as measured by a gauge tied to consumer spending, increased 1.3 percent in February compared with a year ago. That's well below the Federal Reserve's 2 percent target, giving the central bank room to keep stimulating the economy without having to worry about price pressures.
Consumers spent more at the start of the year even after paying higher taxes. An increase in Social Security taxes has reduced take-home pay for nearly all Americans receiving a paycheck. And income taxes have risen on the highest earners. The tax increases both took effect on Jan. 1.
One reason the tax increases have not slowed the economy is companies have accelerated hiring and are slowly but steadily increasing wages.
Employers have added an average of 200,000 jobs a month since November. That helped lowered the unemployment rate in February to a four-year low of 7.7 percent. Economists expect similar strong job gains in March.
Businesses are also investing more in equipment and machinery, which has given factories a lift after a disappointing 2012.
And the housing recovery that began last year appears to be sustainable. In February, sales of previously occupied homes rose to the highest level in more than three years. The gains have helped lift home prices, which have made Americans feel wealthier.
Stock prices have also surged. On Thursday, the Standard & Poor's 500 index closed at a record high of 1,569. That surpassed the previous record of 1,565 set in October 2007, a year before the peak of the financial crisis.
Three weeks ago, the Dow Jones industrial average beat its 2007 record.
Markets were closed on Friday for the Good Friday holiday.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Car dealerships turn advertising, sales focus to women
- Hackers cash in on online payday loans
- DermatologistOnCall finds success on the web from its base in Downtown Pittsburgh
- India’s poor, traders fear push to ban beef
- Review: Chevrolet Trax is an affordable SUV option
- Hearings set on new environmental rules for gas, oil drilling in Pa.
- Businesses pursue A-list clients
- Heinz, French’s cross lines in escalating condiment wars
- Transition to planes without pilots imagined