WASHINGTON -- U.S. consumer spending rose in February and income rebounded, further signs economic activity accelerated in the first quarter, even though part of the increase in consumption reflected higher gasoline prices.
The Commerce Department said on Friday consumer spending increased 0.7 percent last month after an upwardly revised 0.4 percent rise in January. Spending had previously been estimated to have increased 0.2 percent in January.
Economists polled by Reuters had expected spending, which accounts for about 70 percent of U.S. economic activity, to increase 0.6 percent last month.
After adjusting for inflation, spending was up 0.3 percent after advancing by the same margin in January. While Americans paid 35 cents more for gasoline last month, they also bought long-lasting goods such as automobiles and spent more on services, thanks to a bounce-back in income growth.
Income increased a healthy 1.1 percent after tumbling 3.7 percent in January. A sustained pace of steady job gains is starting to boost wages, which should help to provide some cushion for households from higher taxes and support economic growth.
Personal income in December was sharply higher because of a rush to pay dividends and bonuses before tax hikes took effect this year. That also skewed data for January.
A 2 percent payroll tax cut expired on Jan. 1 and tax rates for wealthy Americans also went up. Data ranging from employment to factory activity has so far shown little sign the tighter fiscal policy has been a major drag on the economy.
First-quarter GDP growth estimates currently range as high as a 3.2 percent annual rate. The economy grew at only a 0.4 percent pace in the fourth quarter.
Last month, the income at the disposal of households after inflation and taxes increased 0.7 percent in February after dropping 4.0 percent in January.
With income growth outpacing spending, the saving rate - the percentage of disposable income households are socking away -- rose to 2.6 percent from 2.2 percent in January.
Reporting by Lucia Mutikani; Editing by Neil Stempleman.