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Consumer spending increases slightly as income growth slows

Consumer spending increases slightly as income growth slows
A couple walks past the Shadyside Variety Store in Pittsburgh on March 23. (Gene J. Puskar / Associated Pres)

Consumers increased their spending slightly last month as income growth slowed, an indication that the U.S. economy is off to a sluggish start this year, the Commerce Department said Monday.

In addition to 0.1% growth in February, the Commerce Department significantly revised down the previous month's figure, to 0.1% from 0.5%.

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Inflation also slowed because of low energy costs, with a key price index declining 0.1% in February, compared with a 0.1% increase the previous month.

Prices rose 1% during the 12 months ended Feb. 29, well below the Federal Reserve's 2% annual target. Excluding volatile energy and food prices, inflation was 1.7% for the same period.

Low inflation could lead Fed policymakers to delay another hike in a key interest rate. They also would be unlikely to act if the economy is growing slowly.

Consumer spending accounts for about two-thirds of U.S. economic activity, and it has been lackluster since December.

The weak consumer spending in the first two months of the year points to another sluggish quarter of economic growth.

A closely watched indicator from the Federal Reserve Bank of Atlanta estimates that the economy will expand at just a 0.6% annual rate from January through March. (That figure was updated from an earlier announced rate of 1.4%.) That would be slower than the teipd 1.6% pace in the fourth quarter.

Also on Monday, the National Assn. for Business Economics said a survey of its members found that they expect just 2.2% growth this year, down from a 2.6% estimate in December.

Consumers "turned cautious" at the start of the year amid turmoil in financial markets, said Chris Rupkey, chief financial economist at Union Bank in New York.

"The stock market turbulence and increasing downside risks from the world economy did affect the consumers mood apparently," he said.

Personal income rose 0.2% last month, down from a 0.5% increase in January. It was the weakest income growth since September.

Still, incomes were up for the 11th straight month. However, consumers opted to save much of the additional money rather than spend it.

The percentage of disposable income saved increased to 5.4% last month, up 0.1 percentage point from January and the highest rate in a year.

But spending could rebound this month.

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As U.S. stock markets have risen in recent weeks, "consumer spending is likely to end the first quarter on a high note," said Chris G. Christopher Jr., director of consumer economics at IHS Global Insight.

Follow @JimPuzzanghera on Twitter.

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