WASHINGTON us consumer spending rose in January as Americans spent more on utilities, with savings offer a pillow after income the largest decline in 20 years.
The Commerce Department said Friday consumer spending increased 0.2 percent in January following a revised 0.1 percent rise the previous month. Expenditure had previously estimated 0.2 percent in December.
January the increase was economists expectations.
Consumer spending accounts for about 70 percent of u.s. economic activity and when adjusted for inflation, it gained 0.1 percent after a similar increase in December.
Although spending rose in January, it was supported by a rise in services, probably related to utilities consumption after a cold snap during the month.
Expenditure on goods fell, suggest some hit after the expiry of a 2 percent payroll tax reduction at the end of 2012. Tax rates for wealthy Americans also increased.
The effect is expected to be bigger in February the expenditure data and possibly to expand through the first half of the year as households adjust to smaller salary, which is strained by the rising gasoline prices are also.
"We expect a significant decrease in real consumer spending in the first half of the year," said Yelena Shulyatyeva, American economist at BNP Paribas, New York.
"We are looking for a very moderate Q1 reading, and that is the effect of the fiscal tightening. Which will significantly weigh in on first quarter GDP, which we expect 1.2 percent that.
GDP advanced at a rate of 0.1 percent in the last three months of 2012, with increased expenditure consumers in a healthy 2.1 percent annual pace.
Income tumbled 3.6 percent, the biggest drop since January 1993. As companies, concerned about higher taxes, rushed to pay dividends and bonuses for the new year was part of the decrease of the payback for a 2.6 percent increase in December.
Taking into account the higher taxes that went into effect at the beginning of the year, was the squeeze on households is even greater. The income available to households after inflation and taxes a 4 percent collapsed in January after upgrading from 2.7 per cent in December.
With the exception of the payment of the dividend and bonus boost, disposable income increased 0.3 percent in January.
With income drops sharply and increased expenditure, the savings rate-the percentage of income households are socking away-dropped to 2.4 percent, the lowest level since November 2007. The rate had increased to 6.4% in December.
Savings were the smallest since December 2007.
Inflation was largely contained, even though gasoline prices pushed higher. A price index for consumer spending was flat for a second straight month.
That the increase in the past 12 months left on 1.2 percent, the smallest since October 2009. It rose 1.4 percent in December.
So-called core prices, which strip out food and energy costs, edged up 0.1 percent after being flat the previous month. The year-on-year profit was 1.3 percent, the smallest since April 2011 and well under the Federal Reserve's 2 percent target.
The u.s. Central Bank last year started with an open end band buy program and said it would like it to the saw a substantial improvement in the Outlook for the labour market.
It hopes that the purchase will drive down borrowing costs.
Weak growth and benign inflation could force the Fed to maintain it's very easy monetary policy stance.
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