Consumer spending rises 0.6% in January

Increase ends 6-month slide

Economists warn not to count your chickens before they hatch: A small gain in consumer spending in January, driven by food purchases, is not expected to repeat. Economists warn not to count your chickens before they hatch: A small gain in consumer spending in January, driven by food purchases, is not expected to repeat. (Paul Sakuma/Associated Press)
Associated Press / March 3, 2009
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WASHINGTON - Consumer spending rose in January after falling a record six straight months, pushed higher by purchases of food and other nondurable items. But the increase is expected to be fleeting given the problems facing the economy.

A batch of fresh reports yesterday showed few signs of an economic rebound, with nonresidential construction spending falling to its lowest level in more than a decade and manufacturing activity contracting for a 13th straight month.

The Commerce Department report on consumers showed spending rose 0.6 percent in January, better than the 0.4 percent gain that economists expected.

Personal incomes rose 0.4 percent in January, partly reflecting the cost-of-living adjustments provided to millions of Social Security recipients. Still, that was better than the 0.2 percent decline economists expected.

The personal savings rate surged to 5 percent, the highest level since 1995, as consumers continued to sock away more of their incomes amid the deepening recession.

The government calculates the savings rate as a percentage of after-tax incomes. The growth from 3.9 percent in December partly reflected that while overall incomes rose 0.4 percent, after-tax incomes shot up 1.7 percent, providing potentially more money for savings.

The January increase was driven by a sharp 1.3 percent rise in purchases of nondurable goods led by much higher spending on food. Durable goods posted a 0.1 percent increase, as Americans again avoided spending on cars and other large items.

While the 0.6 percent increase in consumer spending was the largest since May, analysts do not expect the strength to continue amid a recession that's already the longest in a quarter-century.

The department also reported construction spending dropped 3.3 percent in January, more than twice as much as economists expected. Residential construction fell 2.9 percent and nonresidential activity dropped 4.3 percent, the biggest decline since January 1994.

Meanwhile, the Institute for Supply Management trade group said its measure of manufacturing activity showed the sector contracting for the 13th straight month in February. The index actually rose slightly to 35.8 last month, while analysts had expected a drop to 33.8. But a reading below 50 indicates the sector is shrinking. The index hit a 28-year low of 32.9 in December.

The cutback in consumer spending has been a key factor making this recession so severe. The government reported last week that the overall economy, as measured by the gross domestic product, shrank at an annual rate of 6.2 percent in the final three months of 2008. That was the sharpest fall in about 26 years.

The economic weakness is keeping a lid on inflation. A price gauge tied to consumer spending showed a modest increase of 0.2 percent in January after three straight monthly declines that reflected sharp drops in energy costs. Excluding food and energy, the price gauge rose 0.1 percent in January and has risen only 1.6 percent in the last 12 months.

Consumer spending, which accounts for about 70 percent of total economic activity, fell at an annual rate of 4.3 percent in the fourth quarter, the biggest drop since the second quarter of 1980.

The 0.4 percent increase in personal incomes followed two months of declines and was somewhat surprising in light of the massive layoffs that have occurred this year. The country lost a net total of 598,000 jobs in January and the unemployment rate rose to a 16-year high of 7.6 percent.

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