Tuesday, April 1, 2008

Income grows as consumers do little spending in Feb

WASHINGTON (Reuters) — Consumers, jolted by a credit crisis, job cuts and soaring energy costs, turned in the weakest spending performance in 17 months in February, and consumers' confidence weakened to the lowest in 16 years in March, fresh evidence that the risks of a recession are increasing.
The Commerce Department said Friday that consumer spending edged up 0.1% last month, the poorest showing since September 2006. And if the effects of inflation are removed, spending was flat in February, the third consecutive month of sluggish activity.

Personal income rose 0.5%, the report said, exceeding a forecast of 0.3%.

The personal consumption expenditure price index, a key measure of inflation, rose 0.1% in February after a downwardly revised increase of 0.3% in January. Excluding volatile food and energy costs, the personal consumption expenditure index also rose just 0.1%, in line with analyst expectations.

On a year-over-year basis, this core index rose 2.0%, matching the prior months' gain, which was downwardly revised from 2.2%.

FIND MORE STORIES IN: New York | Commerce Department | Fed | Lehman Bros | Reuters/University of Michigan Surveys of Consumers | Zach Pandl
"The decline in the year-over-year core PCE is important in that it supports the notion the Fed is making the right decision in cutting rates aggressively and not threaten long-term price stability. It argues that the Fed can lower rates in the months ahead," said Zach Pandl, an economist with Lehman Bros. in New York.

The personal savings rate was 0.3% in February after a negative 0.1% in January.

The performance of the consumer is closely watched since consumer spending accounts for two-thirds of total economic activity. Economists said the sustained weakness in this area is one of the most worrisome signs that the economy could be tipping into a recession.

The Reuters/University of Michigan Surveys of Consumers said its final index of confidence fell to 69.5 in March as worries over fading job prospects and rising inflation clouded the outlook. That was the lowest since February 1992, when it was at 68.8.

Economists polled by Reuters expected a reading of 70.0 in the index of confidence, which the preliminary report had said was at 70.5 in early March.

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