Money to burn....shop 'til you drop, baybeee.
Jump in Spending Suggests Robust Recovery
Updated 4:30 PM ET March 29, 2002
By Caren Bohan
WASHINGTON (Reuters) - U.S. consumer spending rose in February at the fastest pace since a car sales-led surge in October, as the economy sailed ahead at full tilt in the early stages of its emergence from recession.
U.S. consumer spending grew 0.6 percent last month after a 0.5 percent gain in January, the Commerce Department reported.
The gain was led by purchases of big-ticket items like cars and furniture and outpaced the 0.5 percent rise projected by private economists.
``It looks as if the economy is in a fairly healthy state of recovery,'' said Bill Cheney, chief economist at John Hancock Financial Services in Boston. ``These numbers are a lot better than one would have been expecting a month or two ago.''
February's spending increase was the sharpest since a 3 percent spending jump in October, which occurred as consumers flocked to car showrooms to take advantage of zero-percent financing deals.
Growth in Americans' incomes appeared to encourage the enthusiasm for shopping. Personal income -- which includes wages, salaries and money from other sources such as rents and interest on bank deposits -- climbed 0.6 percent last month following a 0.5 percent rise in the prior month.
The income rise last month was the biggest since December 2000 and it was double the 0.3 percent increase expected by U.S. economists in a Reuters survey.
Taken together, the income and spending figures added to growing evidence of a surprisingly strong momentum in the U.S. economy as it pulls out of a mild recession that began last March.
Consumer spending remained resilient throughout the slump and -- as evidenced by Friday's report as well as consumer confidence numbers that have rolled out this month -- is showing no sign of tailing off just yet.
A closely watched gauge of consumer sentiment by the University of Michigan bolted higher in March to 95.7, the highest reading since December 2000.
HOT DEMAND FOR BIG-TICKET GOODS
Spending in February was especially strong in the key category of durable goods -- items like cars, furniture and appliances that are built to last.
Durable goods spending jumped 1.7 percent in February, rebounding from a 0.8 percent drop in January. Purchases of nondurable goods rose 0.3 percent in the latest month, while service expenditures increased 0.6 percent.
Since consumer spending drives two-thirds of U.S. economic activity, the spending number bodes well for gross domestic product in the first quarter, which ends March 31.
On Thursday, the Commerce Department ratcheted up its estimate of GDP for the fourth quarter of last year, revising the pace of growth to 1.7 percent from a previously reported 1.4 percent, cementing beliefs the economy had entered 2002 already in recovery and on an apparently sure footing.
Some analysts think first-quarter GDP could show growth of around 5 percent, helped by the fact that firms have been operating with very lean inventories and need to place orders for new goods just to meet current demand.
Only two months ago, most economists, including Federal Reserve Chairman Alan Greenspan, were bracing for a sluggish rebound from the recession. Now, financial markets are gearing up for the possibility that Greenspan may begin to raise interest rates by around mid-year to keep the economy from growing too rapidly and firing up inflation.
The Fed slashed overnight rates 11 times last year in one of the most aggressive rate-cutting sprees in history. The overnight federal funds rate now stands at 1.75 percent.
Helping to give the Fed some breathing space was a tame reading on a closely watched inflation gauge released within the personal income and spending report.
The PCE price index rose a mere 0.1 percent in February. The ``core'' PCE index, which excludes volatile food and energy costs, also rose 0.1 percent. Both indexes had increased by a matching 0.1 percent in January.
Some economists cautioned there still may be a few bumps along the way in the recovery and in the spending trends.
``There were a lot of special factors influencing this report that won't be repeated in the months ahead: the tax refunds, the mild winter weather, lower gasoline prices and earlier-than-usual Easter,'' said Mark Vitner, economist at Wachovia Securities in Charlotte, N.C.
Yet even amid a solid rise in spending in February, the saving rate rose, a positive sign for the future. The saving rate hit 2 percent in February, up from January's 1.9 percent.
Consumers managed to save a little more because disposable or after-tax income rose a sharp 0.7 percent. |
