Consumer Spending Rises in January but Likely to Fall Again

By Neil Irwin
Washington Post Staff Writer
Monday, March 2, 2009; 11:42 AM

Americans' spending rose in January, as did their incomes, but analysts warned there was little reason for optimism about a broader economic rebound.

The 0.6 percent rise in consumer spending was the first increase since June, according to the Commerce Department, which also announced a 0.4 percent rise in personal income. Those numbers, while a pleasant surprise and better than analysts had expected, were not interpreted as overly encouraging.

"The gains do not reflect an improvement in the fundamental economy," Stuart Hoffman, chief economist of PNC Financial Services Group, wrote in a report. He noted that personal income got a boost from the cost-of-living adjustment to Social Security and government wage increases kicking in at the beginning of the year. And spending rose in part because higher gas prices increased sales at service stations.

Americans saved 5 percent of their income in January, continuing a steep rise. That rate was zero as recently as last April. In the long run, it is desirable for Americans to save more. But in the short run, increased savings mean less spending, which makes the recession deeper.

Separately, the Institute for Supply Management released its February survey of manufacturing firms. Factories continued pulling back on production last month, though at a slightly less severe pace than in January. The organization's manufacturing index was 35.8, up from 35.6. And inventories rose, which means that unstocked goods were accumulating in manufacturers' warehouses.

Meanwhile, the construction industry continued its rapid descent, with spending down another 3.3 percent in January. Analysts had expected it to fall only 1.5 percent. The steepest decline, according to the Census Bureau, was in commercial real estate, with spending on office building, hotel, retail and other private nonresidential construction down 4.9 percent.

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