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Consumer spending increases in February, 5th straight month of gains

Best Buy employee Eva Gonzalez, left, shows a digital camera to customers Arline Burgess, right, and Della Burgess in New York. Consumer spending rose in February even though incomes remained flat.
Best Buy employee Eva Gonzalez, left, shows a digital camera to customers Arline Burgess, right, and Della Burgess in New York. Consumer spending rose in February even though incomes remained flat. (Jb Reed/bloomberg News)

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By Ylan Q. Mui
Washington Post Staff Writer
Tuesday, March 30, 2010

Consumers kept their wallets open for the fifth month in a row in February even though their incomes remained unchanged, according to government data released Monday.

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Spending on nondurable goods, such as clothing, jumped 0.9 percent last month, while spending on services rose 0.3 percent. Those increases were partially offset by a 0.2 percent decline in purchases of durable goods such as autos. Total consumer spending increased 0.3 percent.

"People are spending a little bit more," said Brian A. Bethune, chief U.S. economist for consulting firm IHS Global Insight, noting that retailers have continued their aggressive pricing. "When you give somebody a great deal, they will tend to move on it."

The steady gains in consumer spending are boosting confidence that the engine of the nation's economy is starting to hum again. February's increase was particularly notable because it came despite a freeze on wages following six months of growth. That sent the personal savings rate down to 3.1 percent, the lowest level since October 2008.

"Consumers shrugged it off for the month and increased their spending anyway," G. Hoffman, chief economist for PNC Financial Services Group, wrote in a note to clients.

Stock markets seemed to welcome the news, with the major U.S. indexes rising.

The blue-chip Dow Jones industrial average gained 0.4 percent, or 45.50 points, to close at 10,895.86, while the broader Standard & Poor's 500-stock index rose 0.6 percent, or 6.63 points, to 1173.22.

The tech-heavy Nasdaq composite index rose 0.4 percent, or 9.23 points, to 2404.36.

Stocks have been on the rise the past four weeks, their longest period of gains since August, amid growing consensus that the economy is in recovery. On Tuesday, the energy and commodities sectors led the way with gains of more than 1.5 percent. But trading was light and expected to remain quiet throughout the week as investors celebrate religious holidays.

Several key indicators are scheduled to be released this week. The Conference Board is expected to report on Tuesday that consumer confidence rose in March, another signal that consumers are gaining strength. Data on housing prices, factory orders and manufacturing are also scheduled to be released. But stock markets will be closed in observance of Good Friday this week when the highly anticipated monthly unemployment rate is announced.

"That's the golden ticket," said William Byrne, director of trading for Conifer Securities. "It all hinges on that unemployment rate."

Economists have asserted that a turnaround in the labor market is crucial to sustained consumer recovery.

Bethune said heavy snowstorms in February cut into the hours employees worked and that job creation was weak, holding down incomes. But he predicted that incomes would rise in the coming months, particularly as the Census Bureau completes hiring for 1.2 million positions.


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