Energy, food costs push up US consumer spending

Groceries Wikimedia Commons

AFP

WASHINGTON (AFP) – US consumer spending rose in February, outpacing income growth, as Americans faced higher costs for energy and food, official data showed Monday.

Consumer spending rose 0.7 percent from January, more than double the 0.3 percent increase in January, the Commerce Department reported.

It was the strongest increase since October and topped forecasts for a 0.5 percent rise.

“The problem isn’t that consumers aren’t spending, they are,” RDQ Economics analysts told clients. “But spending gains are being soaked up in higher prices for food and energy.”

“Consumer spending looks to be a significant hurdle for first-quarter real growth,” they added.

Personal income gains slowed, rising 0.3 percent, after a 1.2 percent jump in January.

Adjusted for inflation, consumer spending was up 0.3 percent after stagnating in January. Personal income slipped for the first time since September, by 0.1 percent.

Higher energy and food prices led the gains. The PCE price index for personal consumption rose 0.4 percent in February, compared with an increase of 0.3 percent in January.

But excluding food and energy, the PCE price index rose for the second month in a row by 0.2 percent.

With rising spending outpacing incomes, the savings rate slipped to 5.8 percent from 6.1 percent in January, according to the Commerce Department data.

Still, Americans were saving roughly the average rate for all of 2010 in the face of falling home values and high unemployment, key obstacles to the economy’s full recovery from the severe recession that ended in June 2009.

Consumer spending is the key driver of growth in the world’s largest economy, accounting for roughly 70 percent of output.

Gross domestic product growth in the final quarter last year in part reflected stronger personal spending that had accelerated from 2.7 percent in the third quarter to 4.0 percent.

The government revised upward Friday its GDP growth estimate for the 2010 fourth quarter to 3.1 percent, following a 2.6 percent gain in the third quarter.

© AFP — Published at Activist Post with license