Income rises, spending weak

Personal income tops forecasts, but consumers still holding on to their dollars; inflation in check.

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By Ben Rooney, staff writer

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NEW YORK ( -- Personal income rose and a key measure of inflation held steady in February, but consumer spending remained weak, according to a government report released Friday.

The Commerce Department said personal income increased 0.5% in February, exceeding the 0.3% increase expected by economists surveyed by January's gain was 0.3%.

In inflation-adjusted dollars, spending by individuals remained unchanged at 0.1%, in line with forecasts. Spending by individuals in current dollars rose 0.4%, also matching January's rate and economists' forecasts.

"The economy is weakening and household finances are being strained," Bernard Baumohl, executive director of The Economic Outlook Group, said.

A measure that tracks prices consumers pay on items excluding food and energy rose 2% over the same period last year, suggesting that inflation is increasing at a moderate rate.

Wall Street closely monitors that inflation gauge to determine whether the Federal Reserve will keep up its aggressive rate-cutting campaign. The central bank is scheduled to meet next on April 30.

"This is a fairly decent report," said Wachovia economist Adam York. "Inflation is back at the top of the Fed's comfort zone."

However, consumer spending remains weak, York said, and current data suggest it will remain so in the near term and possibly decline in the first quarter.

Consumer spending fuels more than two-thirds of the nation's economic activity and is closely watched as a gauge of the economy's health.

American households are deeply indebted, while household wealth is declining. Meanwhile, gas prices have soared and Americans have become concerned about job security, which is forcing consumers to reign in spending, Baumohl said.

"For me, this puts the final nail in the coffin that we're in a recession," he added.

Many economists have argued that the economy entered a recession late last year, though the technical definition of a recession - two straight quarters of declining economic growth - has not been met, and some believe the economy may still avoid a recession.

The Commerce Department's final reading on fourth-quarter gross domestic product, the broadest measure of the nation's economic activity, showed an anemic growth rate of 0.6% during the final three months of last year.  To top of page

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