Consumer Spending, Income Rise in February

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Consumer Spending
Gene J. Puskar/AP
By Lucia Mutikani

WASHINGTON -- U.S. consumer spending rose in February, in the latest sign that the economy was regaining strength after being chilled by bad weather.

The Commerce Department said Friday that consumer spending increased 0.3 percent last month after rising by a revised 0.2 percent in January. Spending was previously reported to have increased 0.4 percent in January.

Economists polled by Reuters had forecast consumer spending, which accounts for more than two-thirds of U.S. economic activity, rising 0.3 percent in February.

The dollar rose to a session high against the yen after the data. U.S. stock index futures were little changed.

Spending in February was lifted by an increase in services consumption, likely because of increased demand for health care and utilities.

When adjusted for inflation, consumer spending rose 0.2 percent in February after gaining 0.1 percent in January.

This so-called real spending measure goes into the calculation of gross domestic product. Consumer spending rose at its fastest pace in three years in the fourth quarter, %VIRTUAL-article-sponsoredlinks%helping to lift economic growth to an annualized pace of 2.6 percent during the period.

A combination of bad weather, a slow pace of inventory accumulation by businesses, the expiration of long-term unemployment benefits and cuts to food stamps is expected to hold back growth to around a 2 percent rate in the first quarter. But a rebound is expected as these factors fade.

Income rose 0.3 percent last month after rising by the same margin in January. It continues to be supported by government transfers for healthcare payments.

Income at the disposal of households after adjusting for inflation rose 0.3 percent. The saving rate, which is the percentage of disposable income households are socking away, rose to 4.3 percent last month from 4.2 percent in January.

There were few signs of inflation pressure in February. A price index for consumer spending edged up 0.1 percent for a second straight month in February.

Prices in February rose 0.9 percent from a year ago, compared to a 1.2 percent advance in January over the previous 12 months. February's increase was the smallest since October.

Excluding food and energy, the price index for consumer spending rose 0.1 percent for an eighth straight month. Core prices were up 1.1 percent from a year ago, after rising by the same margin in January.

Both inflation measures remain stuck below the Federal Reserve's 2 percent target. That suggests the Fed, which is expected to wrap up its monthly bond purchases by the end of 2014, will only gradually raise interest rates when it starts tightening monetary policy.

9 Numbers That'll Tell You How the Economy's Really Doing
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Consumer Spending, Income Rise in February
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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