WASHINGTON (AP) — Consumer spending rose in February at the fastest pace in four months, but a big part of the increase went to cover higher gas prices.

KNX 1070’s Pete Demetriou Reports

The Commerce Department said Monday that consumer spending jumped 0.7 percent in February. Personal incomes rose 0.3 percent. That was after a 1.2 percent January income increase — the biggest in nearly two years. Both gains reflected a Social Security tax cut which boosted take-home pay.

Still, high gas prices were a big reason for the spending gains. Economists are concerned that if energy costs keep going up, it will cut into household budgets and leave consumers with less money to spend on other items.

Consumer spending is closely watched because it accounts for 70 percent of economic activity. It grew at an annual rate of 4 percent in the October-December quarter, the fastest pace in four years. But higher oil prices are threatening to sap some of that momentum this year.

Some economists say consumer spending will only grow at a 2 percent rate in the first three months this year, then rise at the fastest pace since before the recession.

In February, spending on durable goods rose 1.7 percent. Much of that strength came from the purchase of new cars. Still, spending on nondurable goods rose 1.5 percent, reflecting higher prices for gasoline.

Tax cuts should boost spending in the coming months, even in the face of higher energy prices.

The big rise in spending and smaller increase in incomes pushed the household saving rate down to 5.8 percent of after-tax incomes last month. That compared to 6.1 percent in January.

An inflation measure tied to consumer spending that is followed by the Federal Reserve rose 0.4 percent in February. But excluding food and energy, this inflation gauge was up a more moderate 0.2 percent. Over the past 12 months, core inflation, which excludes food and energy, is up a modest 0.9 percent.

(© Copyright 2011 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.)

Comments (2)
  1. Everyday Guy says:

    Record unemployment, energy prices rising, food prices rising, the world in turmoil, and an immature man-child in the White House. How’s that ‘hope and change’ working for you?

  2. alan hart says:

    All this means is we are getting exactly the same items for more money. This is not a boost in consumer spending, it is inflation!

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