Consumers spent in February although incomes shrank

WASHINGTON -- The government says consumers increased spending for a second month in February even though their incomes slipped due to continuing layoffs.

The Commerce Department reported Friday that consumer spending edged up 0.2% in February, in line with expectations. That follows a revised 1% jump in January that was even better than the 0.6% rise originally reported.

However, after adjusting for inflation, consumer spending in February fell 0.2%.

A price gauge tied to consumer spending rose 0.3% in February and was up 0.2% excluding food and energy, indicating that the recession has contributed to a significant moderation in inflation.

The report says incomes fell 0.2% in February, fourth drop in the past five months, declines that reflect the sizable number of layoffs because of the recession.

After-tax incomes also fell in February, edging down 0.1%. With incomes down while spending rose, the personal savings rate dipped slightly to 4.2% in February, from 4.4% in January. Still, the recent performance marks the first time the savings rate has been above 4% in more than a decade.

Savings fell slightly to an annual rate of $450.7 billion.

The back-to-back increases in consumer spending in January and February had followed six straight declines in spending from July through December. Consumer spending in the fourth quarter fell at an annual rate of 4.3%, biggest decline in 28 years, and was the major factor pushing overall economic activity down 6.3% during that period.

Many economists believe the gross domestic product will drop by that amount in the current January-March period and will continue falling in the spring, although at a slower pace. Analysts are not looking for the current recession, which began in December 2007, to end until the second half of this year.