US consumers spend more after incomes rise again
Published: Thursday, March 1, 2012 at 9:04 a.m.
Last Modified: Thursday, March 1, 2012 at 9:04 a.m.
WASHINGTON — U.S. consumers earned a little more in January and spent most of the extra money. The gains should keep the economy growing at a modest pace.
The Commerce Department said Thursday that consumer spending increased 0.2 percent in January. That's better than December's reading of no change. Consumer spending accounts for 70 percent of economic activity.
Americans' income rose 0.3 percent, the second straight monthly increase.
Income barely kept pace with inflation last year. So the increases are a positive sign that consumers will have more money to spend.
Stronger hiring in December and January, rather than pay raises, helped boost income. Still, that trend should fuel more consumer spending and support solid growth for the economy in coming months.
Economists are worried that Americans might cut back on spending if their paychecks don't increase this year.
Incomes were much higher in the second half of last year than previously thought, the Commerce Department said Wednesday. Still, even with the revision, after-tax incomes adjusted for inflation rose only 1.3 percent in 2011. Except for the recession year of 2009, when incomes fell, that's the smallest annual growth in incomes since 1991.
Consumer spending rose 2.1 percent in the final three months of last year, and economists expect a similar increase in the current quarter. That should help the economy expand at about a 2 percent pace in the January-March period.
Most economists expect growth should rise to 2.5 percent this year. That would be healthy in most years but is modest coming after the worst recession since World War II.
The increase in income stems from more hiring, greater overtime and small pay gains. Employers added 243,000 jobs in January, the most in nine months. The unemployment rate has fallen for five straight months, to 8.3 percent.
Manufacturing workers worked more overtime in January. And average hourly earnings rose 4 cents to $23.29, the Labor Department said earlier this month.
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