US consumer spending slows as savings surge

City A.M. Reporter
US consumer spending rose modestly in January as households took advantage of the largest increase in incomes in more than 18 months to rebuild savings, government data has shown.

The Commerce Department said spending edged up 0.2 per cent, the smallest increase in seven months, after an upwardly revised 0.5 per cent rise in December. It was still the seventh straight month of gains.

Economists polled by Reuters had expected spending, which accounts for about 70 per cent of US economic activity, to rise 0.4 per cent in January.

Real spending fell 0.1 per cent, the first decline in a year, after rising 0.3 per cent in December.

The drop in real spending offered an early confirmation that spending would slow down after rising sharply in the last three months of 2010. Spending in the fourth quarter grew at a 4.1 per cent annual rate, the fastest in more than four years.

Incomes rose one per cent last month, the largest increase since May 2009, after increasing 0.4 per cent in December.

The increase in January outpaced economists' expectations for a 0.4 per cent gain. Savings jumped to $677.1bn (£420bn), the highest level since August, from $620.9bn in December.

The report also showed the Federal Reserve's preferred measure of consumer inflation – the personal consumption expenditures price index, excluding food and energy – edged up 0.1 per cent last month, after being unchanged in December.

In the 12 months to January, the core PCE index rose 0.8 per cent after rising by the same margin in December.