Consumer spending in the U.S. climbed in February by the most in five months as incomes rose, signaling an improving job market is spurring demand.
Household purchases, which account for about 70% of the economy, gained 0.7% after a 0.4% advance the prior month that was bigger than previously estimated, a Commerce Department report showed today in Washington. The median estimate in a Bloomberg survey of 78 economists called for a 0.6% rise. Incomes increased 1.1%, more than projected, sending the saving rate up from a five-year low.
Labor market progress and an increase in household wealth linked to rising home values and stocks are helping Americans cushion the fallout of higher payroll taxes and costlier fuel. Strength in purchases is one reason economists project the economy picked up this quarter after slowing to a 0.4% annual rate in the final three months of 2012.
“The economy is in a very good place right now ahead of the fiscal restraint,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “This recovery is sustainable. Consumers are in the driver’s seat.”
Stock markets in the U.S. were closed today for the Good Friday holiday.
Projections for spending ranged from gains of 0.3% to 0.9%. The January reading was previously reported as an increase of 0.2%.
The Bloomberg survey median called for incomes to rise 0.8%. The gain in February followed a 3.7% drop the prior month that reflected, in part, the 2 percentage-point increase in the payroll tax.
The saving rate increased to 2.6% from 2.2% in January, the lowest since August 2007. Wages and salaries climbed 0.6% after falling 0.6%. Figures for both months were reduced by $15 billion at an annual rate reflecting the impact of the accelerated bonuses paid out last year before tax rates climbed.
Disposable income, or the money left over after taxes, rose 0.7% after adjusting for inflation. It dropped 4% in the prior month.
Adjusting consumer spending for inflation, which renders the figures used to calculate gross domestic product, purchases rose 0.3% for a second month, today’s report showed.
An index of prices tied to spending patterns increased 1.3% from February 2012, the same as in January. The gain in below the Federal Reserve’s goal of keeping inflation around 2%, leaving policy makers room to keep pumping money into financial markets.
The so-called core measure, which excludes food and fuel costs, rose 0.1% from the prior month, and was also up 1.3% from February 2012.
The economy grew at a 0.4% annual rate in the fourth quarter, following a 3.1% pace in the third quarter, revised figures showed yesterday. The fourth-quarter slowdown was due to the biggest slump in military spending since 1972 and slower inventory building. Consumer purchases rose at a 1.8% rate, revised down from a prior estimate of 2.1%.
Economic growth will move up to a 2% rate in the first quarter, according to the median estimate of 73 economists surveyed by Bloomberg from March 8 to March 13.