WASHINGTON, D.C.— Consumers spending rose in February at the fastest pace in four months, but a big part of the increase went to cover higher gas prices.
The Commerce Department said Monday that consumer spending jumped 0.7 percent in February. Personal incomes rose 0.3 percent. That was after a 1.2 percent January income increase — the biggest in nearly two years. Both gains reflected a Social Security tax cut, which boosted take-home pay.
Still, high gas prices were a big reason for the spending gains. Economists are concerned that if energy costs keep going up, it will cut into household budgets and leave consumers with less money to spend on other items.
Once inflation was removed, the 0.7 percent spending rise was a more moderate 0.3 percent. That showed that much of people’s spending power is being eaten up by higher priced goods — much of that fuel.
Incomes after taking into account required tax payments rose 0.3 percent in February, the same as the overall increase in incomes. But after adjusting for inflation, after-tax incomes actually fell 0.1 percent.
Paul Dales, senior U.S. economist at Capital Economics, said the February figures on incomes and spending provided “yet more evidence that higher prices are denting economic growth.”
Dales said it was likely that consumer spending will grow only 2 percent to 2.5 percent in the current January-March quarter. That would be down sharply from the 4 percent increase in consumer spending in the October-December period, the fastest pace in four years. Higher oil prices are threatening to sap that momentum this year.
In February, spending on durable goods rose 1.7 percent. Much of that strength came from the purchase of new cars. Still, spending on nondurable goods rose 1.5 percent, reflecting higher prices for gasoline.
The big rise in spending and smaller increase in incomes pushed the household saving rate down to 5.8 percent of after-tax incomes last month. That compared to 6.1 percent in January.
An inflation measure tied to consumer spending that is followed by the Federal Reserve rose 0.4 percent in February, the biggest one-month gain in nearly three years. But excluding food and energy, this inflation gauge was up a more moderate 0.2 percent. Over the past 12 months, core inflation, which excludes food and energy, is up a modest 0.9 percent.