Ahead of the Bell: Consumer spending

AP News
Posted: Mar 28, 2011 7:31 AM
Ahead of the Bell: Consumer spending

Consumers likely spent at a faster clip in February although some of the increase reflects higher prices paid at the gas pump.

The consensus view of economists is that consumer spending rose 0.5 percent last month while personal incomes increased 0.4 percent. The Commerce Department will release the new report at 8:30 a.m. EDT Monday.

In January, consumer spending increased 0.2 percent, the smallest gain since June. A Social Security tax cut got off to a slow start in terms of spurring consumers to buy more.

The tax cut did give a big boost to incomes, which rose 1 percent in January, the largest increase in nearly two years.

Economists blamed bad weather for some of the January spending weakness and they expect a rebound in February. Still, higher gas prices are likely to 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 believe that consumer spending will only grow at a 2 percent rate in the first three months this year. However, they think that spending will gain momentum as the year goes forward and help lift overall economic growth to the fastest pace since before the recession.

Economists at HIS Global Insight believe the overall economy will expand 3.2 percent this year, the best performance since 2004. The economy grew 2.9 percent in 2010 after having fallen 2.6 percent in 2009, the biggest decline in more than 60 years.

The expectation for faster growth in consumer spending is based on the view that the tax cuts should help provide support for spending in coming months, even in the face of higher energy prices.