Consumers Spend More After Incomes Rise Again

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Consumers spend more after incomes rise againWASHINGTON (AP) - Consumers earned a little more in January and spent most of the extra money.

The modest gains should keep the economy growing slowly. But they disappointed economists, who were expecting bigger increases after two months of strong hiring.

The Commerce Department said Thursday that consumer spending increased 0.2 percent in January. That's better than December's reading of no change.

Americans' income rose 0.3 percent, the second straight monthly increase.

A separate report from the Labor Department suggested February was another strong month for hiring. Weekly applications for unemployment benefits dipped last week to 351,000.

The figure matched a four-year low set three weeks ago, leading many economists to predict employers added more than 200,000 net jobs in February for the third straight month.

Still, even with more jobs in the economy, Americans are seeing little growth in after-tax income.

After paying taxes and adjusting for inflation, incomes actually dipped in January. That reflected a big increase in tax payments last month, partly because of the expiration of a tax credit.

At the same time, inflation-adjusted spending was flat for the third straight month. That was partly because of warmer weather, which allowed people to spend less to heat their homes.

"Stronger job creation is not generating more spending," said Jennifer Lee, an economist at BMO Capital Markets. She expects many economists will lower their forecasts for growth in the current quarter.

Hiring in December and January, rather than pay raises, helped boost income. That trend may fuel more consumer spending and support solid growth for the economy in coming months. Consumer spending accounts for 70 percent of economic activity.

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.

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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6 Comments

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plcz28

What extra spending? Everyone I know is cutting back due to hidden inflation and high gasoline prices. The summer vacation is now on hold as is unnecessary shopping trips. It is back to basics again.......

March 02 2012 at 7:25 AM Report abuse +2 rate up rate down Reply
cpo1514

In the Obama world incomes rise. The fact is that the REDUCED income cannot pay for all the price increases this Occupant has levied upon citizens. Fuel, heating (gas & electric), food and basic transportation. Time to say OMG Obama Must Go...Huffy... may want an article of why Obama is a failure?????

March 01 2012 at 2:20 PM Report abuse +1 rate up rate down Reply
jdykbpl45

How do you spend when your unemployment runs out?

March 01 2012 at 1:57 PM Report abuse +3 rate up rate down Reply
1 reply to jdykbpl45's comment
cpo1514

Aunt Nancy stated the unemployment is a plus and stimulates spending??? Time for Nancy to retire and disappear???

March 01 2012 at 2:22 PM Report abuse +1 rate up rate down Reply
midsr4kids

(tried posting this on the article writen by Eamon Murphy,would not post strangely) I would like to see the bio on the author who "penned" this propagnda.."Eamon" Murphy sounds like "IMAN" aka muslim cleric or magician. Democrats are notorious for using straw men to post "good times" news in the face of hard fact,often using synonyms (EAMON) for (IMAN) because they believe they are superior to you ,due to college attendance,often at your expense.Check out who is posting these articles and thier motivations before you believe anything read. Simple advice enough, but lost on the current age. Remeber it's not democracy if it's paid for by Barack Otoolbox for president 2012!

March 01 2012 at 11:15 AM Report abuse +1 rate up rate down Reply
1 reply to midsr4kids's comment
bggdg

That's OK, we're tired of reading your repetitive posts in the comment section of the article written by Eamon Murphy.

Of course, that still doesn't explain why you'd post your desire to read Eamon Murphy's bio in the comment section of an article that wasn't written by Eamon Murphy?

Both this article as well as the one written by Eamon are reports of economic data that has been released.

If you'd prefer not to read such information, don't.

Ignorance is bliss, they say!

March 01 2012 at 12:14 PM Report abuse rate up rate down Reply