Consumer Spending Edges Up

Consumer spending slowed to the weakest pace in six months in February while personal income grew at the slowest rate since November, according to economic reports released Friday.

The Commerce Department said personal consumption spending rose by a weaker-than-expected 0.1% after a solid 0.8% increase in January, which had been aided by a mild winter.

Personal income was up 0.3% in February, less than half January’s 0.7% jump, which had been boosted by government pay raises and by cost-of-living adjustments for millions of Social Security recipients.

Analysts discounted much of the slowdown in spending as a payback after the weather-related January increase. February weather acted to depress sales, especially in the Northeast, which was hit by a severe snowstorm.

“Consumers may have throttled back a touch in February, but given the weather and all they had spent the previous few months, we cannot conclude that consumption is faltering,” said Joel Naroff, chief economist at Naroff Economic Advisors.

Even with February’s lower rate of growth in consumer spending and income, analysts believe that the overall economy will show a significant rebound after slowing significantly in the final three months of last year.

Disposable income, the amount left after paying taxes, rose 0.2% last month after a 0.6% January gain. That left the personal savings rate unchanged at a negative 0.5% in February, the same as the January reading.

The savings rate, the proportion of disposable income left after spending is accounted for, has been negative or at zero for 11 consecutive months, a worrisome development at a time when 78 million baby boomers are nearing retirement.

The slowdown in consumer spending in February reflected a drop of 1.9% in purchases of durable goods such as autos and a 0.6% drop in spending on nondurable goods.

An inflation gauge preferred by the Federal Reserve showed consumer prices excluding food and energy rose by just 0.1% in February with prices up only 1.8% over the last 12 months.

In other economic news, orders to U.S. factories edged up 0.2% in February, far below the 1.3% increase economists had been expecting. Factory orders fell 3.9% in January.

Also, the University of Michigan’s index of consumer sentiment rose to 88.9 from 86.7 in February. And the National Assn. of Purchasing Management-Chicago said its regional index of Midwest business activity climbed to 60.4 from 54.9. A reading greater than 50 signals growth.