Economy Picture


Friday, March 30th 2001, 12:00 am
By: News On 6


WASHINGTON (AP) -- Consumers were more frugal in February after a
January buying binge but they still spent at a moderate pace.
Incomes rose a bit more quickly than spending.
The Commerce Department reported Friday that Americans' spending
rose by 0.3 percent last month. That followed a big 1.0 percent
jump in January, according to revised figures, even stronger than
the government previously estimated and the largest increase since
February 2000.
Incomes, which include wages, interest and government benefits,
increased by 0.4 percent in February, after a revised 0.5 percent
gain, a little weaker than reported one month ago.
February's performance was generally in line with analysts'
expectations. They were forecasting a 0.3 percent rise in both
spending and income.
On Wall Street, stock prices drifted. In the first half-hour of
trading, the Dow Jones industrial average gained 10 points and the
Nasdaq index gained 3 points.
The Federal Reserve has slashed interest rates three times this
year to stave off recession. The lower rates are designed to make
borrowing cheaper, thus encouraging consumers and businesses to
spend to bolster economic growth.
Fed Chairman Alan Greenspan has said one of the biggest factors
in determining whether the economy slumps into a recession is how
well consumer confidence holds up during the current slowdown.
In February, consumer confidence fell for the fifth month in a
row in to its lowest level in more than four years. But confidence
staged a major comeback in March, a possible harbinger to increased
spending down the road.
Consumer spending accounts for two-thirds of all economic
activity and was a main engine of the economy's sizzling growth
that the country enjoyed until the second half of last year.
Last month, spending on durable goods, such as cars, rose a
strong 1.6 percent, on top of a big 3.2 percent gain in January.
Spending on services, which includes gas and electric utilities,
rose 0.4 percent in February, following a 0.5 percent increase the
month before. For nondurables, such as food, spending declined by
0.5 percent after a 1.3 percent increase. The spending figures
aren't adjusted for inflation.
Economists said one reason consumer spending hasn't collapsed in
the face of a highly volatile stock market, higher energy prices
and a five-month streak of lower consumer confidence is because
most Americans still have jobs, even with the economic slowdown.
The nation's unemployment rate held at 4.2 percent in February
and more new jobs were added during the month.
With spending holding up in February, the personal savings rate
-- savings as a percentage of after-tax income -- stayed at a
negative 1.3 percent, matching a record low set in January.
Analysts say the savings rate doesn't provide a complete picture
of household finances because it doesn't capture gains realized
from such things as higher real-estate values or from financial
investments.