(WASHINGTON) - Consumers spent briskly in January as their incomes rose solidly, a fresh sign the U.S. economy, shaken by the recession and the terrorist attacks, is on the road to recovery.
The Commerce Department reported Friday that spending by consumers, which accounts for two-thirds of all economic activity in the United States, rose 0.4 percent in January after being flat in December.
At the same time, Americans' incomes, which include wages, interest and government benefits, also increased by 0.4 percent, the largest advance in six months. Incomes rose 0.3 percent in December.
The recession, which began in March, has probably ended and may turn out to be the mildest downturn in U.S. history, Federal Reserve Chairman Alan Greenspan told Congress Wednesday.
However, because consumers kept buying throughout the slump, they will have less pent-up demand. That means spending probably won't rise as quickly as in past rebounds, making the recover less robust than usual, Greenspan and other economists said.
Nonetheless, some economists are predicting the economy, as measured by the gross domestic product, could grow by as much as 3.5 percent, on an annualized basis, in the January-March quarter.
The government reported Thursday that the economy grew by a faster-than-expected 1.4 percent rate in the final three months of last year. Analysts were amazed by that turnaround, given that the economy, jolted by the Sept. 11 attacks, shrank at a 1.3 percent rate in the third quarter.
Even though consumers opened their pocketbooks and wallets more in January, they were still selective shoppers.
Consumers cut spending on big-ticket goods, including cars, by 2.1 percent in January, but still an improvement over the 3.7 percent reduction in December. Some of the belt-tightening reflects the waning of free financing and other incentives on new cars and trucks, analysts say.
For nondurable goods, such as food and clothes, consumers increased their spending by 1.2 percent in January, on top of a 0.8 percent rise in December. Many retailers have discounted merchandise in an effort to motivate buyers.
Spending on services rose by 0.5 percent for the second month in a row.
Americans' incomes were boosted in part by cost-of-living adjustments to retirees' Social Security checks as well as some other benefits payments from the federal government.
Disposable incomes - income after taxes - went up 1.6 percent in January, after rising 0.2 percent in December. The January rise largely reflects the impact of lower federal income taxes.
Because disposable incomes rose more quickly than spending in January, the nation's personal savings rate - savings as a percentage of after-tax income - was lifted to 1.8 percent from 0.6 percent in December.