Consumer Spending Posts a Solid Gain

WASHINGTON â€”  Consumer spending rose solidly in February, the government said Friday, a signal that first-quarter economic growth may be stronger than economists have been estimating.

Consumer spending, which fuels two-thirds of gross domestic product growth, increased 0.3% to a seasonally adjusted annual rate of $7 trillion, the Commerce Department said.

Underscoring this strength, the department revised upward its figure for spending in January to a gain of 1% from the previously reported 0.7%. January’s spending rise was the biggest in 11 months.

The report also said Americans pocketed a pay raise for the fourth straight month as personal income grew 0.4% in February to an annual rate of $8.54 trillion after a 0.5% gain in January.

U.S. economists had forecast rises of 0.3% in both income and spending.

Analysts said the February consumer spending number, taken together with the upwardly revised January one, painted a picture of economic growth in the first quarter of this year that was less grim than many feared it might be.

Consensus forecasts for the first quarter have pegged first-quarter gross domestic product growth at about 0.75%, enough to skirt a recession for now but just barely.

“These numbers suggest GDP growth will be in close to the 1.25% range,� said David Orr, chief economist at First Union Bank in Charlotte, N.C.

Another positive sign was contained in a report Friday showing that consumer confidence snapped back in March after three months of sharp declines.

The University of Michigan’s final consumer sentiment index, which measures consumer attitudes on the economy going forward as well as the current financial picture, rose more than expected in March to 91.5 from February’s reading of 90.6.

Meanwhile, the U.S. saving rate, measuring the amount of disposable income left after spending, remained at a record low of minus 1.3%. That means that for every $100 consumers took home in after-tax income, they spent $101.30.

The Purchasing Management Assn. of Chicago said its index of business activity in the Midwest fell to 35 in March, the lowest level since March 1982 and much lower than the reading of 43.5 analysts had expected.

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Personal Income

Seasonally adjusted annual rate, in trillions of dollars:

February: $8.54 trillion

Source: Commerce Department

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Personal Spending

Seasonally adjusted annual rate, in trillions of dollars:

February: $7 trillion

Source: Commerce Department