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Spending Increases, But Income Is Down

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The Associated Press

Published: March 28, 2009

WASHINGTON - The government says consumers increased spending for a second straight month in February even though their incomes slipped because of continuing layoffs.

The Commerce Department reported Friday that consumer spending edged up 0.2 percent in February, in line with expectations. That comes after a 1 percent jump in January that was even better than the 0.6 percent originally reported.

The report states that incomes fell by 0.2 percent in February, the fourth drop in the past five months, declines that reflected the sizable number of layoffs that have been occurring because of the recession.

After-tax incomes also fell in February, edging down 0.1 percent. With incomes sliding as spending rose, the personal savings rate dipped slightly to 4.2 percent in February, compared with 4.4 percent in January. Still, the latest two-month performance marked the first time that the savings rate has been above 4 percent for two consecutive months in more than a decade.

Economists think the deep recession, already the longest in a quarter-century, will make consumers do more to trim spending and boost savings. That could make it more difficult for the country to pull out of the recession because consumer spending accounts for about 70 percent of economic activity.

The back-to-back increases in consumer spending in January and February came after six straight declines that occurred from July through December. Consumer spending in the fourth quarter fell at an annual rate of 4.3 percent, the biggest decline in 28 years, and was the major factor pushing overall economic activity down by 6.3 percent during that period.

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