U.S. Personal Spending Rise Is Smallest in 4 Months
March 26 (Bloomberg) -- U.S. personal spending rose 0.2 percent in February, the smallest gain since October, as purchases of automobiles and other durable goods slowed, a government report showed.
The increase was half as much as economists surveyed by Bloomberg News had forecast and followed a 0.5 percent gain in January that was larger than first estimated, the Commerce Department reported in Washington. Incomes climbed 0.4 percent following a 0.3 percent increase in January.
Consumer spending ``isn't driving the acceleration of the economy, but it's still shaping up to be pretty solid in the first quarter,'' said James Glassman, a senior economist at J.P. Morgan Securities Inc. in New York. ``As the expansion broadens to include hiring, that is going to provide ongoing support for the consumer.''
Extra cash from tax refunds and from a rebound in mortgage refinancing is supplementing incomes and providing the buying power needed to propel spending this quarter at retailers such as Wal-Mart Stores Inc. The weakest job gains of any expansion since World War II pose a threat to sustained consumer spending, which accounts for 70 percent of the economy.
``Without strong job growth, consumer spending will slow,'' said Michael Moran, chief economist at Daiwa Securities America inc. in New York, in a note to clients this week. ``The slow pace of job growth and the recent increases in energy prices will probably weigh more heavily in the second half of the year.''
Personal Consumption Index
Economists had estimated spending rose 0.4 percent after a previously reported 0.4 percent increase in January, according to the median of 68 estimates in a Bloomberg News survey. They had also expected a 0.3 percent gain in February incomes following a 0.2 percent rise the month before.
Consumer confidence rose from February and from a preliminary March reading, the University of Michigan said. The sentiment index, based on a survey of 500 households, climbed to 95.8 from last month's 94.4 and the earlier reading of 94.1 for this month.
In today's Commerce Department report, a measure of inflation tied to spending, the personal consumption expenditure price index, climbed 0.2 percent last month.
The index excluding volatile food and energy prices, a gauge tracked by Federal Reserve Chairman Alan Greenspan and other policy makers, edged up 0.1 percent last month, capping a 1.1 percent rise since February 2003. The increase over the past 12 months compared with a 0.8 percent year-over-year gain in December that matched the lowest since record keeping began in 1960.
The rise in core prices ``was more benign than people expected,'' said J.P. Morgan's Glassman. ``One percent inflation is pretty impressive, and that is one of the most important reasons why the Fed can remain patient.''
Job Growth
Fed policy makers last week reiterated they can be ``patient'' in changing the target for the overnight bank lending rate from 1 percent, the lowest since July 1958, as long as inflation remains subdued, employment gains don't jump and unused capacity remains.
Payrolls have grown by 61,000 workers on average over the last six months, less than a third of the average gain during the same period after the 1990-1991 recession. The lack of job creation has become a campaign issue for John F. Kerry, a Massachusetts senator and Democratic candidate to succeed President George W. Bush. Kerry has said the administration has done too little to spur employment as the economy has shed 2.3 million jobs during Bush's presidency.
Disposable income, or the money left after taxes, increased 0.4 percent in February following a 0.9 percent jump the previous month. Wages and salaries climbed 0.5 percent after gaining 0.7 percent.
Savings Rate
The personal savings rate was 1.9 percent in February, up from 1.8 percent. The indicator weighs current income from wages, salaries, businesses and government payments against spending. It doesn't account for borrowed money, income from investments, or withdrawals from prior savings.
Spending on durable goods such as autos, furniture and other items that last three years or more, fell 0.2 percent after dropping 3.2 percent in January.
Spending on non-durable goods jumped 0.1 percent after rising 1.8 percent. Spending on services, which account for almost 60 percent of all outlays, increased 0.4 percent after rising 0.6 percent.
Automakers sold 16.4 million cars and light trucks at an annual rate in February, compared with 16.1 million a month earlier.
General Motors Corp., the world's largest automaker, projects industry sales will rise to a 16.7 million annual rate this month, the most since December, according to a forecast by Paul Ballew, the Detroit-based manufacturer's chief sales analyst.
Wal-Mart, Target
Other sales are also rising. Wal-Mart Stores Inc., the world's largest retailer, said this week that U.S. March sales are rising near the high end of its 4 percent to 6 percent forecast. The projected increase was the highest in 11 months.
Bentonville, Arkansas-based Wal-Mart said shoppers were spending tax refund checks cashed at its stores. The average refund through the week ended March 19 was 4.9 percent bigger this year than last, according to figures from the Internal Revenue Service. Refunds have outstripped last year's total at this time by $10.9 billion.
Target Corp., the No. 2 U.S. discount chain, also said this week that March sales have been higher than it expected.
``Sales have been very strong,'' said Todd Bradley, chief executive of PalmOne Inc., the world's biggest maker of hand-held computers, in an interview Tuesday. The Milpitas, California- based company said it may have a profit this quarter and forecast sales would improve to between $245 million and $255 million from $242.5 million in the quarter ended Feb. 28.
To contact the reporter on this story:
Carlos Torres in Washington ctorres2@bloomberg.net.
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