Incomes, consumer spending show solid gains

Published: Friday, April 1, 2005 at 6:01 a.m.
Last Modified: Thursday, March 31, 2005 at 11:35 p.m.
WASHINGTON - Americans' incomes, bolstered by strong gains in hiring, rose by 0.3 percent in February while consumer spending climbed at an even faster pace of 0.5 percent, the government reported Thursday.
The Commerce Department said the gain in spending followed a much smaller 0.1 percent increase in January and reflected the fact that auto sales rebounded last month after having fallen in January.
The 0.3 percent rise in incomes was attributed to a surge of 262,000 new jobs in February, the biggest increase in four months. Further solid gains in both incomes and consumer spending are expected in the months ahead as the consumer continues to be a driving force in the economy.
Analysts said the February gains in incomes and spending showed the economy was being propelled this year by continued strength in employment growth and consumer spending - which accounts for two-thirds of total economic activity.
''Strong payroll gains over the next few months will surely boost the numbers'' for incomes, Ian Shepherdson, chief U.S. economist for High Frequency Economics, said in a note to clients.
On Wall Street, a new jump in oil prices outweighed the good economic data. The Dow Jones industrial average lost 37.17 points to close at 10,503.76.
In other economic news, the Commerce Department reported that orders to U.S. factories rose by 0.2 percent in February as strong demand for commercial aircraft, steel and computers offset a drop in demand for new cars and industrial machinery. The gain was weaker than the 0.5 percent increase that many economists had been expecting, but it still represented an improvement following no change at all in January orders.
Meanwhile, the Labor Department said that the number of Americans filing new claims for unemployment benefits rose by 20,000 to 350,000 last week. It was the highest level for jobless claims in 11 weeks. However, the four-week moving average for claims rose by a more modest 8,500 to 336,000 last week, a level still low enough to signal continued job creation in the economy.
Analysts are expecting another strong gain in employment of around 220,000 jobs when the March jobs performance is reported on Friday. Starting with the recession in 2001, the country suffered through two years of outright declines in employment and then weak job growth in 2003. However, job gains accelerated last year, pushing employment up by more than 2 million workers.
, an increase that analysts expect to be matched this year.
The economic rebound was fueled by four rounds of tax cuts promoted by President Bush and easy credit from the Federal Reserve.
With the impact of the tax cuts waning and the Fed now raising interest rates to make sure that the reviving economy does not fuel unwanted inflation, analysts believe that economic growth will moderate somewhat this year.
For all of 2004, the economy grew by 4.4 percent, including a 3.8 percent growth rate in the final three months of the year. Analysts believe the economy in the first three months of this year probably grew at a 4 percent rate. The 0.3 percent increase in incomes in February followed two months of huge swings. Incomes had soared by 3.7 percent in December, reflecting a one-time $32 billion dividend payment to stockholders by computer software giant Microsoft Corp., only to drop by 2.5 percent in January.
Without the dividend payment, incomes would have grown by 0.6 percent in December and 0.4 percent in January. The 0.5 percent increase in consumer spending was the strongest gain since a 0.9 percent jump in December, a month when car sales were spurred by attractive end-of-year sales incentives.
Taking out the effect of inflation, consumer spending rose a more modest 0.3 percent in February. A gauge of inflation preferred by the Fed which tracks the rise in prices paid by consumers excluding food and energy showed an increase of 1.6 percent for the 12 months ending in February, a moderate reading that helped ease investors' concerns about inflation.
The report on factory orders showed that demand for durable goods, items expected to last three or more years, rose by 0.5 percent in February, even better than an initial estimate of a 0.3 percent increase made last week.
Demand for nondurable goods fell by 0.2 percent in February following a huge 1.4 percent jump in January. Disposable income, the amount left over after taxes, grew by 0.3 percent in February. The personal savings rate as a percentage of disposable income dipped slightly to 0.6 percent in February.
compared to 0.8 percent in January.

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