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Customers shop inside the Sears store in downtown Chicago in a file photo. (NAM Y HUH/AP)
Customers shop inside the Sears store in downtown Chicago in a file photo. (NAM Y HUH/AP)

U.S. personal spending hits seven-month high Add to ...

U.S. consumer spending in February increased by the most in seven months even as income rose modestly, which could prompt analysts to scale back expectations of a sharp pull back in economic growth this quarter.

The Commerce Department said on Friday consumer spending rose 0.8 per cent, as households probably stepped up purchases of motor vehicles, despite a spike in gasoline prices.

January’s spending was revised up to 0.4 per cent from a previously reported 0.2 per cent gain. Economists polled by Reuters had expected spending, which accounts for two-thirds of U.S. economic activity, to rise 0.6 per cent last month.

When adjusted for inflation, spending rose 0.5 per cent, the largest gain since September, after gaining 0.2 per cent in January. That could cause analysts to raise their forecasts for 2 per cent first-quarter growth.

The economy expanded at an annual rate of 3 per cent in the final three months of 2011 as it got a boost from restocking by businesses, a stimulus that is expected to be lost this quarter.

Consumer spending rose at a 2.1 per cent rate in the fourth quarter and last month’s increase suggested consumers were taking surging gasoline prices in stride, and saving less to supplement their low income.

Spending on goods meant to last more than three years rose 1.6 per cent in February after advancing 1.4 per cent the prior month. Spending on services rose 0.4 per cent. Unseasonably warm weather had curbed demand for utilities in the prior months.

Last month income edged up 0.2 per cent after rising by the same margin in January. The increase was below economists’ expectations for a 0.4 per cent rise.

Taking inflation into account, the amount of income available to households after accounting for taxes and inflation, fell 0.1 per cent after declining 0.2 per cent in January.

With consumption outpacing income, the saving rate dropped to 3.7 per cent, the lowest rate since August 2009.

The report showed mild inflation pressures, which should help to support spending.

A price index for personal spending rose 0.3 per cent in February after increasing 0.2 per cent the prior month. In the 12 months through February, the PCE index was up 2.3 per cent. It increased 2.4 per cent in January.

A core inflation measure, which strips out food and energy costs, edged up 0.1 per cent last month after rising 0.2 per cent in January. In the 12 months through February, core PCE rose 1.9 per cent after increasing by a similar margin in January.

The Federal Reserve would like this measure close to 2 per cent.

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