US consumer spending crawls in January

WASHINGTON: US consumers tightened their wallets in January after holiday shopping despite a surge in personal incomes, official data showed Monday, casting a cloud on the momentum of the economy's recovery.

Consumer spending edged up a seasonally adjusted 0.2 percent in January, the weakest pace since June, the US Commerce Department reported.

And adjusted for annual inflation at 0.3 percent, consumer spending -- which accounts for about two-thirds of US economic output -- fell for the first time in a year, by 0.1 percent.

"This represents a soft start to the first quarter," said Peter Newland, a Barclays Capital analyst.

Although expanded jobless benefits helped some households, there was "a drag from higher gasoline prices," said Newland.

"While we expect consumer spending growth to rebound later in the quarter, growth in the first quarter as a whole is likely to be noticeably softer than the 4.1 percent registered in the fourth quarter," he added.

The crucial final month of 2010 was not as strong as first thought. Despite steep discounts offered by retailers to lure holiday shoppers, December spending increased 0.5 percent instead of the 0.7 percent initially estimated.

Although the January slowdown amid winter snowstorms was in line with expectations, it came as consumers found their incomes surged one percent --the sharpest gain since May 2009 -- more than double the December rise.

"Incomes were boosted by the extension of unemployment benefits agreed by Congress in December, while wage and salary incomes, depressed by the severe weather, rose only 0.3 percent," said Ian Shepherdson at High Frequency Economics.

With persistently high unemployment weighing on consumers' wallets, inflationary pressures remained tame as businesses appeared reluctant to pass on higher wholesale prices to customers.

The consumer spending price index rose for the second straight month by 0.3 percent in January from December. The core price index, excluding food and energy, edged up 0.1 percent.

On a 12-month basis, the index, known as the personal consumption expenditures (PCE) price index, rose 1.2 percent in January, the same pace as in December.

The PCE indicator has languished below the Federal Reserve's inflation comfort zone of 1.6 percent to two percent for the past eight months.

Excluding food and energy, core PCE prices held steady for a second month running at an annual 0.8 percent rate, the weakest core inflation since the department started tracking the numbers in 1959.

As consumers hunkered down they piled up their savings, pushing the personal savings rate up to 5.8 percent, its highest level since September.

Spending on goods rose 0.7 percent but was flat on services, the largest sector of the US economy.

Robert Brusca, chief economist at FAO Economics, noted that on an annual basis spending fell by 0.9 percent, a "devastating blow."

"Services is the job-producing sector and this weak performances goes along way to explaining the weak jobs growth in January," he said.

The struggling economy added a weak 36,000 jobs in January, while the unemployment rate fell to 9.0 percent.

The next keenly awaited Labor Department jobs report is due Friday.

Most analysts project that 180,000 jobs were created in February and the jobless rate ticked up to 9.1 percent.