U.S. consumer spending rises modestly; savings at two-year high

[March 30, 2015]  U.S. consumer spending barely rose in February as households boosted savings to their highest level in more than two years, the latest sign that economic growth slowed sharply in the first quarter.

The Commerce Department said on Monday that consumer spending edged up 0.1 percent after an unrevised 0.2 percent drop in January. Households cut back on purchases of big ticket items like automobiles, but a cold snap lifted spending on utilities.

Economists polled by Reuters had expected consumer spending, which accounts for more than two-thirds of U.S. economic activity, to increase 0.2 percent last month.

When adjusted for inflation, consumer spending dipped 0.1 percent last month after rising 0.2 percent in the prior month. Consumption has cooled since the fourth quarter, when it set its fastest pace in more than eight years.

Bad winter weather has combined with a strong dollar, a now-settled labor dispute at the busy West Coast ports and softer demand in Europe and Asia to dampen economic growth in the first quarter. The slowdown in activity, however, is expected to be temporary.

While households appear to have opted to save the bulk of their savings from lower gasoline prices and also to pay down debt, their improved balance sheets and a tightening labor market should boost consumer spending this year, according to economists.

Last month, income rose 0.4 percent after a similar gain in January. Savings jumped to $768.6 billion, the highest level since December 2012, from $728.7 billion in January.

The saving rate rose to 5.8 percent, also the highest since December 2012, from 5.5 percent in January.

There was a slight uptick in prices last month, suggesting a recent disinflationary trend had run its course, but inflation remains well below the Federal Reserve's 2 percent target.

A price index for consumer spending increased 0.2 percent after falling 0.4 percent in January. In the 12 months through February, the personal consumption expenditures (PCE) price index rose 0.3 percent.

Excluding food and energy, prices edged up 0.1 percent after a similar gain in January. The so-called core PCE price index increased 1.4 percent in the 12 months through February.

(Reporting by Lucia Mutikani; Editing by Paul Simao) (([e-mail]; 1 202 898 8315; Reuters Messaging: [e-mail])

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