U.S. Consumer Spending Rose More Than Forecast in February

Purchases increased 0.7 percent, the most since October, after advancing 0.3 percent the prior month, Commerce Department figures showed today in Washington. Incomes increased 0.3 percent, less than projected, and the Federal Reserve’s preferred measure of inflation accelerated.

The U.S. added jobs for the sixth consecutive month in February and the unemployment rate fell to the lowest level since April 2009, helping cushion Americans from higher food and fuel prices. Spending is contributing to the recovery, which Fed policy makers say is on a “firmer footing.”

“The consumer is on the mend,” Richard DeKaser, an economist at Parthenon Group in Boston, said before the report. “The labor market is picking up, and that’s what we need to drive spending growth. Households have had the benefit of a substantial wealth recovery.”

Stock-index futures held earlier gains after the report and Treasury securities fell. The contract on the Standard & Poor’s 500 Index maturing in June rose 0.1 percent to 1,311.8 at 8:33 a.m. in New York. The yield on the benchmark 10-year note, which moves inversely to prices, increased to 3.47 percent from 3.44 late on March 25.

The median estimate of 71 economists surveyed by Bloomberg News called for a 0.5 percent advance in spending after a previously reported 0.2 percent gain the prior month. Projections ranged from little change to gains of 0.8 percent.

Forecast Details

Economists forecast incomes would rise 0.4 percent, according to the Bloomberg survey. The Commerce Department revised January’s reading up to 1.2 percent from a previously reported 1 percent.

Wages and salaries increased 0.3 percent in February for a third month.

Disposable incomes, or the money left over after taxes, dropped 0.1 percent after adjusting for inflation, the first decrease since September and a reminder of the challenge represented by rising food and energy costs. Real disposable income climbed 0.5 percent in the prior month.

The savings rate decreased to 5.8 percent from 6.1 percent in January.

Today’s report also showed inflation picked up. The gauge tied to spending patterns increased 1.6 percent from February 2010, compared with a 1.2 percent gain in the 12 months ended in January.

More Inflation

The Fed’s preferred price measure, which excludes food and fuel, rose 0.2 percent for a second month, and was up 0.9 percent from a year earlier, the most since October. The median forecast in the Bloomberg survey showed increases of 0.2 percent from the prior month.

“The economic recovery is on a firmer footing,” Fed officials said in a statement after their March 15 meeting. While “the recent increases in the prices of energy and other commodities are currently putting upward pressure on inflation,” these effects are expected to be “transitory,” they said.

Today’s report showed that adjusted for inflation, which are the figures used to calculate gross domestic product, consumer spending rose 0.3 percent after little change in January. Increasing demand for durable goods such as autos led the gain.

Job prospects are improving, and bigger paychecks stemming from a tax compromise reached by President Barack Obama and congressional Republicans in December will help to support demand this year.

Retail Sales

Retail sales climbed in February by the most in four months, boosted by a jump in auto purchases. J.C. Penney Co. and Macy’s Inc. were among retailers that topped analysts’ same-store sales estimates, company data showed.

Orlando, Florida-based Darden Restaurants Inc., which owns the Red Lobster and Olive Garden chains, said sales and profit rose in its third quarter ended Feb. 27.

“The economy is in a much better place,” Clarence Otis, Darden’s chief executive officer, said on a March 25 conference call. “That bodes well for an increase in visits to full-service dining.” Still, higher gasoline costs “definitely serve as a tax on consumers,” he said.

The economy ended 2010 on a stronger note than previously anticipated. Gross domestic product grew at a 3.1 percent annual rate in the fourth quarter, revised up from a 2.8 percent estimate issued last month, Commerce Department figures showed on March 25. Consumer purchases rose at a 4 percent pace, the most since the same three months in 2006.

Bigger gains in spending made be hard to achieve given rising bills for groceries and gasoline. Regular fuel was at $3.56 a gallon on March 24, the most since October 2008, according to AAA, the nation’s biggest motoring organization. Food costs rose 0.6 percent last month, the most since 2008, consumer-price index data showed.