U.S. consumer spending in February increased by the most in seven months even as income rose modestly, which could prompt analysts to scale back expectations of a sharp pull back in economic growth this quarter.
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The Commerce Department said on Friday consumer spending rose 0.8%, as households probably stepped up purchases of motor vehicles, despite a spike in gasoline prices.
January's spending was revised up to 0.4% from a previously reported 0.2% gain. Economists polled by Reuters had expected spending, which accounts for two-thirds of U.S. economic activity, to rise 0.6% last month.
When adjusted for inflation, spending rose 0.5%, the largest gain since September, after gaining 0.2% in January. That could cause analysts to raise their forecasts for 2% first-quarter growth.
The economy expanded at an annual rate of 3% in the final three months of 2011 as it got a boost from restocking by businesses, a stimulus that is expected to be lost this quarter.
Consumer spending rose at a 2.1% rate in the fourth quarter and last month's increase suggested consumers were taking surging gasoline prices in stride, and saving less to supplement their low income.
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Spending on goods meant to last more than three years rose 1.6% in February after advancing 1.4% the prior month. Spending on services rose 0.4%. Unseasonably warm weather had curbed demand for utilities in the prior months.
Last month income edged up 0.2% after rising by the same margin in January. The increase was below below economists' expectations for a 0.4% rise.
Taking inflation into account, the amount of income available to households after accounting for taxes and inflation, fell 0.1 percent after declining 0.2% in January.
With consumption outpacing income, the saving rate dropped to 3.7 percent, the lowest rate since August 2009.
The report showed mild inflation pressures, which should help to support spending.
A price index for personal spending rose 0.3% in February after increasing 0.2% the prior month. In the 12 months through February, the PCE index was up 2.3%. It increased 2.4% in January.
A core inflation measure, which strips out food and energy costs, edged up 0.1% last month after rising 0.2% in January. In the 12 months through February, core PCE rose 1.9% after increasing by a similar margin in January.
The Federal Reserve would like this measure close to 2%.