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.
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Nationally, the average gas price hit a recent high of $3.74 per gallon, nearly $0.50 higher than it was on Jan. 1. According to website GasBuddy.com, that's about a 14 percent increase since the start of the year.
The start of the new year also marked the end of the temporary 2 percentage point tax break on Social Security contributions. Once that part of President Obama's stimulus package expired, your paychecks went back to being 2 percent smaller. For the average family, that adds up to about $1,000 a year.
That same "average family," by the way, already earns only about $50,000 a year today. And according to CNN, that's about $4,000 less than you were earning in 2000.
A disconcerting report from Sallie Mae last week showed that about one-third of Americans working toward retirement are having to raid their retirement savings to pay for their kids' college educations.
According to a poll commissioned by Bankrate.com (RATE) in February, only 55 percent of Americans have enough money tucked away in their savings accounts and "emergency funds" to cover the amounts owed on their credit cards.
That Bankrate poll also revealed that among women in particular, 51 percent actually owe more on their credit cards than they have cash in the bank. Digging deeper into the data, Bankrate reported that while high earners are doing well, and generally flush, most people (59 percent) who earn less than $30,000 annually owe more on their cards than they have in savings. And these are the people least able to afford the high cost of credit card interest.
Speaking of earnings -- and jobs -- the same unemployment report that set Wall Street to cheering Friday can be looked at from a glass half empty perspective as well. The new, lower unemployment level of 7.7 percent is the best number we've seen since the Great Recession ended. However, The Wall Street Journal points out that 7.7 percent is very close to the worst unemployment ever got (7.8 percent) in the 1991 recession. Our best number in years is within a whisker of the worst they faced back then.
The overall workforce participation rate -- the percentage of Americans currently earning wages at all -- currently stands at just 63.5 percent. According to the Bureau of Labor Statistics, that's much worse than what we saw in the 1991 recession. It's the lowest we've seen since the recession that hit during the Carter administration.
Little wonder, then, that according to the Bankrate survey, people are increasingly concerned about "job security." Friday's unemployment report may suggest that the jobs market is on the mend, but most people (59 percent) say they feel no more or less confident in their employment situation today than they did a year ago. Among those polled whose opinions have changed, 23 percent said they feel "less secure today" than they did a year ago, versus 19 percent who feel more secure.
That doesn't exactly jibe with the story that things are getting better.
It's great news for folks who own stocks, no doubt, and according to the Journal , more than 90 percent of people earning $100,000 or more do. But what about the rest of us? Fewer than 46 percent of Americans earning less than $50,000 are invested in the stock market -- and remember, "$50,000" is the average income in America today.
So yes, It turns out for the average American, things may not be getting better at all.