Americans' Spending, Incomes Rise Solidly in February

Consumers were more frugal in February after a January buying binge but they still spent at a moderate pace. Incomes rose a bit more quickly than spending.

The Commerce Department reported Friday that Americans' spending rose by 0.3 percent last month. That followed a big 1.0 percent jump in January, according to revised figures, even stronger than the government previously estimated and the largest increase since February 2000.

Incomes, which include wages, interest and government benefits, increased by 0.4 percent in February, after a revised 0.5 percent gain, a little weaker than reported one month ago.

February's performance was generally in line with analysts' expectations. They were forecasting a 0.3 percent rise in both spending and income.

The Federal Reserve has slashed interest rates three times this year to stave off recession. The lower rates are designed to make borrowing cheaper, thus encouraging consumers and businesses to spend to bolster economic growth.

Fed Chairman Alan Greenspan has said one of the biggest factors in determining whether the economy slumps into a recession is how well consumer confidence holds up during the current slowdown.

In February, consumer confidence fell for the fifth month in a row in to its lowest level in more than four years. But confidence staged a major comeback in March, a possible harbinger to increased spending down the road.

Consumer spending accounts for two-thirds of all economic activity and was a main engine of the economy's sizzling growth that the country enjoyed until the second half of last year.

Last month, spending on durable goods, such as cars, rose a strong 1.6 percent, on top of a big 3.2 percent gain in January.

Spending on services, which includes gas and electric utilities, rose 0.4 percent in February, following a 0.5 percent increase the month before. For nondurables, such as food, spending declined by 0.5 percent after a 1.3 percent increase. The spending figures aren't adjusted for inflation.

Economists said one reason consumer spending hasn't collapsed in the face of a highly volatile stock market, higher energy prices and a five-month streak of lower consumer confidence is because most Americans still have jobs, even with the economic slowdown.

The nation's unemployment rate held at 4.2 percent in February and more new jobs were added during the month.

With spending holding up in February, the personal savings rate -- savings as a percentage of after-tax income -- stayed at a negative 1.3 percent, matching a record low set in January.

Analysts say the savings rate doesn't provide a complete picture of household finances because it doesn't capture gains realized from such things as higher real-estate values or from financial investments.