US consumer spending grows at five-month high

Consumer spending in the US rose at the fastest pace in five months during February as higher incomes and a strong jobs market helped to offset an increase in taxes.

The US Bureau of Economic Analysis said spending grew by 0.7 per cent last month. That followed a revised 0.4 per cent increase in January, which was double the initial estimate.

Spending was boosted by a 1.1 per cent uplift in consumer income and BK Asset Management managing director Kathy Lien said: “Both numbers are consistent with a continued recovery of the US economy.”

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February’s income growth contrasted sharply with the previous month’s 3.7 per cent plunge and a surge in December of 2.6 per cent. The volatility was caused by a rush to pay bonuses and dividends in December before tax hikes took effect at the start of the year.

Most economists expect the US economy to have grown at an annual rate of about 2.5 per cent in the three months to March. That would be a vast improvement on the 0.4 per cent growth for the final quarter of 2012.

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Higher taxes have failed to slow the economy because companies are slowly increasing wages and taking on more staff. Employers have added an average of 200,000 jobs a month since November, helping to lower the unemployment rate to a four-year low of 7.7 per cent in February.

Consumer spending accounts for about 70 per cent of US output and Jennifer Lee, senior economist at BMO Capital Markets, said the increases during the first two months of the year point towards an annual growth of rate of more than 3 per cent for the first quarter. That compares with 1.3 per cent in the fourth quarter of 2012 and would mark the fastest gain in more than three years.