Consumer spending in the United
States rose in January even though incomes dropped by 3.6 percent, the most in
20 years, showing that households were weathering the payroll tax increase by
socking away less money in the bank, Bloomberg reported.
Household purchases, which
account for about 70 percent of the economy, climbed 0.2 percent after a 0.1
percent gain the prior month, according to a Commerce Department report
released this morning.
The median estimate in a
Bloomberg survey of 76 economists called for a 0.2 percent advance. Incomes
slumped 3.6 percent, sending the saving rate down to the lowest level since
The saving rate dropped to 2.4
percent from 6.4 percent. Disposable income, or the money left over after
taxes, dropped 4 percent after adjusting for inflation, the biggest plunge
since monthly records began in 1959.
Employment gains, a rebound in
housing and growing demand for autos will probably keep supporting consumer
spending, economists predict. Even so, rising gasoline prices and the need to
rebuild nest eggs may make it difficult for households to match last quarter's
"It's going to be touch and go for the
consumer for the next few months," said Ryan Sweet, a senior economist at
Moody's Analytics Inc. in West Chester, Pa., who correctly projected the 3.6
percent drop in income. "The consumer is going to be able to support the
recovery, but they're not going to be able to take it" to a higher level,