Americans spending more

Government report shows spending by individuals rises for the second month in a row even as incomes fall.

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By Ben Rooney, CNNMoney.com staff writer

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Tracking Obama's unprecedented efforts to rescue the economy.

NEW YORK (CNNMoney.com) -- Consumer spending rose in February, rebounding for the second month in row after falling for six straight months, according to government figures released Friday.

The Commerce Department said spending by individuals rose 0.2%, after increasing a revised 1.0% in January. February's results were in line with a forecast from Economists surveyed by Briefing.com.

After adjusting for inflation, however, real personal spending declined 0.2%. In January, it rose 0.7%.

"It appears the majority of the declines in consumption for this cycle are behind us," Adam York, an economist at Wachovia Economics Group, wrote in a client note.

February's spending uptick came as the Commerce Department reported personal income fell 0.2%. Income rose 0.4% in January, but last month's decline marks a return to the recent downward trend as unemployment has risen.

The report also showed that personal savings declined $27.4 billion in February to $450.7 billion. The personal savings rate, expressed as a percentage of disposable personal income, fell to 4.2% from 4.4% in January.

"The personal saving rate remains near recent highs, as consumers attempt to rebuild their damaged balance sheets," said York. "However, weaker income growth is offsetting slower spending."

Consumer spending makes up nearly two thirds of the nation's gross domestic product, which is the broadest measure of economic activity.

The government said Thursday that GDP fell at an annual rate of 6.3% during the final three months of 2008, with spending by consumers falling at an annual rate of 4.3%.

If the consumer spending figures reported Friday carry over into March's report, GDP could see a 1.2% annualized gain during the first three months of 2009, according to Ian Shepherdson, chief U.S. economist at High Frequency Economics.

However, the outlook for consumer spending and second quarter GDP is less optimistic.

"We look for a renewed decline in the second quarter on the back of falling incomes and the lagged effect of the massive destruction of housing and other wealth," Shepherdson wrote in a research note. "The first quarter is a correction, not a recovery." To top of page

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