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Consumer spending up, ending slide

Government report shows larger-than-expected increase was first gain in 7 months; income also rose.

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By Ben Rooney, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Consumer spending rose more than expected in January, after declining for six consecutive months, according to government figures released Monday.

The Commerce Department report showed spending by individuals rose 0.6% last month, after dropping 1% in December. Economists surveyed by Briefing.com had forecast an increase of 0.4%.

January's increase comes after several months of anemic consumer spending as rising unemployment took its toll on household purchasing power. But economists expect consumer spending to remain weak in the months ahead as the economy continues to deteriorate.

"While this up-tick does not likely signal the start of a string of increases, we will take any good news on the economy these days," said Adam York, an economist at Wachovia Economics Group.

The report also showed that personal income rose 0.4% in January, following a decline of 0.2% in the previous month. Economists had forecast another 0.2% decline.

The personal income figure was boosted by pay raises for federal civilian and military employees, as well as cost of living increases for certain federal programs, according to the report. Excluding these factors, incomes rose 0.2% in January.

Personal savings rose $128.7 billion in January to $545.5 billion. The personal savings rate, expressed as a percentage of disposable personal income, jumped to 5% from 3.9% in December. At 5%, the savings rate is at a 14-year high.

"The savings rate is a better reflection of the caution that consumers are showing than the spending number," York said.

A big decline in consumer spending helped drive the nation's gross domestic product, the broadest gauge of economic activity, sharply lower during the last three months of 2008.

The government said last week that fourth quarter GDP fell at an annual rate of 6.2%, revised up from an earlier estimate of 3.8%. It was the worst decline in GDP in 26 years.

On Friday, a report from the Labor Department is expected to show that the economy lost 598,000 nonfarm jobs in January and that the unemployment rate rose to 7.9% from 7.6%.

Last month, the government reported that consumer spending rose an anemic 3.6% in 2008, the smallest full-year increase in 47 years.

Talkback: Are you living on your unemployment check? How are you making ends meet? What bills are you paying - and which ones are sliding? E-mail your story to realstories@cnnmoney.com and you could be part of an upcoming article. To top of page

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