US consumer spending picked up for the fifth month running in February, lifting hopes that consumers could add momentum to the economic recovery.
Personal consumption expenditure rose by 0.3 per cent last month, commerce department figures showed on Monday. This followed an increase of 0.4 per cent in January and was in line with economists’ expectations.
The growth in spending came as incomes were flat in February after rising for the previous four months. With consumption outpacing income growth, the US savings rate fell to 3.1 per cent, its lowest level since October 2008.
Paul Dales, US economist at Capital Economics, said that while the signs of renewed demand were encouraging, it remained a concern that consumers were dipping more heavily into their savings rather than using fresh income.
Consumption is closely watched by economists because it accounts for about 70 per cent of economic activity in the US.
“Households will not be able to continue to spend at this rate in the coming quarters,” Mr Dales said. “This is especially the case when they can no longer supplement incomes with credit.”
According to Capital Economics, consumption is set to grow at an annualised rate of 3 per cent in the first quarter, compared with last quarter’s 1.6 per cent rise. This would add 1 percentage point to gross domestic product.
Meanwhile, the commerce department’s closely watched gauge of prices rose by just 0.1 per cent in February, indicating that inflation remained subdued in spite of aggressive measures by the US government to stimulate growth.
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