US consumer spending rises modestly; savings at 2-year high

[WASHINGTON] US consumer spending barely rose in February as households boosted savings to their highest level in more than two years, the latest sign that economic growth slowed sharply in the first quarter.

The Commerce Department said on Monday that consumer spending edged up 0.1 per cent after an unrevised 0.2 per cent drop in January. Households cut back on purchases of big ticket items like automobiles, but a cold snap lifted spending on utilities.

Economists polled by Reuters had expected consumer spending, which accounts for more than two-thirds of US economic activity, to increase 0.2 per cent last month.

When adjusted for inflation, consumer spending dipped 0.1 per cent last month after rising 0.2 per cent in the prior month. Consumption has cooled since the fourth quarter, when it set its fastest pace in more than eight years.

Bad winter weather has combined with a strong dollar, a now-settled labor dispute at the busy West Coast ports and softer demand in Europe and Asia to dampen economic growth in the first quarter. The slowdown in activity, however, is expected to be temporary.

While households appear to have opted to save the bulk of their savings from lower gasoline prices and also to pay down debt, their improved balance sheets and a tightening labor market should boost consumer spending this year, according to economists.

Last month, income rose 0.4 per cent after a similar gain in January. Savings jumped to US$768.6 billion, the highest level since December 2012, from US$728.7 billion in January.

The saving rate rose to 5.8 per cent, also the highest since December 2012, from 5.5 per cent in January.

There was a slight uptick in prices last month, suggesting a recent disinflationary trend had run its course, but inflation remains well below the Federal Reserve's 2 per cent target.

A price index for consumer spending increased 0.2 per cent after falling 0.4 per cent in January. In the 12 months through February, the personal consumption expenditures (PCE) price index rose 0.3 per cent.

Excluding food and energy, prices edged up 0.1 per cent after a similar gain in January. The so-called core PCE price index increased 1.4 per cent in the 12 months through February.

REUTERS