Consumer spending rises in the States

US consumer spending rose for an eighth straight month in February, but much of the gain went to cover rising food and energy prices, providing little lift to the economy.

Overall consumer spending rose 0.7 per cent last month after a 0.3 per cent increase in January and inflation accelerated at its fastest pace since June 2009, the Commerce Department said yesterday.

Spending adjusted for inflation rose just 0.3 per cent following a flat reading in January.

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“On balance the report is a mixed bag of news highlighting that rising prices are taking some steam out of recent momentum, but consumers remain on a moderate track of spending growth,” said Julia Coronado, a senior economist at BNP Paribas in New York.

Economists polled by Reuters had expected spending, which accounts for about 70 per cent of US economic activity, to advance 0.6 per cent.

A second report showed pending sales of previously owned homes unexpectedly rose in February, pointing to a rebound in home sales in March after a string of poor housing market data. The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in February, increased 2.1 per cent to 90.8.

Economists had expected the index, which leads existing home sales by a month or two, to fall 1.0 per cent.

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US stocks held steady at higher levels, while prices for government debt were marginally weaker. The dollar was slightly lower against a basket of currencies.

After increasing at its fastest clip in four years in the final three months of 2010, consumer spending is expected to slow in the first quarter, with rising energy and food prices stealing from spending on other goods and services.

Spending grew at a 4.0 per cent annual rate in the fourth quarter, helping to lift overall economic growth to a 3.1 per cent pace during the quarter from 2.6 per cent in the July-September period.

“Real spending growth, the base on which GDP is built, slowed to 2.1 per cent in the three months ending in February. Unless it snaps back in March, which is unlikely with gas prices still rising, GDP growth is likely to be less than 2.5 per cent,” said Chris Low, chief economist at FTN Financial in New York.

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High food and energy prices pushed up overall inflation last month. The Commerce Department said the personal consumption expenditures price (PCE) index rose 0.4 per cent, the fastest since June 2009, after gaining 0.3 per cent in January

A core measure of inflation closely watched by the Federal Reserve, the core PCE index excluding food and energy, increased 0.2 per cent after rising by the same margin in January. In the 12 months through January, the core PCE index rose 0.9 per cent, the fastest rise in four months, after rising 0.8 per cent in January.

Fed Chairman Ben Bernanke has said high food and energy costs should prove transitory, but that the central bank was prepared to act if needed to ensure an inflation psychology does not take root.

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