U.S. Consumer Spending Rises After Six Straight Drops

Consumer spending rose in January for the first time in seven months as Americans took advantage of post-holiday discounts, a gain that’s unlikely to last because of the surge in joblessness.

The 0.6 percent increase was larger than anticipated and followed a 1 percent decrease in December, the Commerce Department said today in Washington. The report showed the Fed’s preferred measure of inflation dropped in January.

Retailers from J.Crew Group Inc. to Saks Inc. and Limited Brands Inc. have cut jobs in the past week, anticipating a further deterioration in spending and contributing to the deepest employment slump since the end of World War II. Stock-indexes reached the lowest levels in more than a decade as investors soured on the economy’s outlook.

“I don’t think we are at the point yet where we can reasonably expect to see consistent increases in income and spending,” said David Resler, chief economist at Nomura Securities International Inc. in New York.

The Standard & Poor’s Stock Index fell 2.3 percent to 717.89 at 10:21 a.m. in New York after touching a 13-year low. Benchmark 10-year Treasury yields dipped to 2.94 percent from 3.02 percent at last week’s close. The dollar advanced 0.5 percent to $1.2610 on a jump in demand for the U.S. currency as a haven.

Economists’ Forecasts

Economists had forecast a 0.4 percent increase in spending, according to the median of 62 estimates in a Bloomberg News survey. Projections ranged from a drop of 0.4 percent to a gain of 0.8 percent.

Another report showed manufacturing in the U.S. contracted in February at a slower pace than the month before as factories cut production to match collapsing sales. The Institute for Supply Management’s factory index rose to 35.8 last month from 35.6 in January. Readings less than 50 signal contraction.

Personal income climbed 0.4 percent, pushed up by pay increases to government employees and cost-of-living adjustments to federal transfer payments, today’s report showed. Salaries and wages fell 0.2 percent, a third consecutive decrease.

Disposable income, or the money left over after taxes, increased 1.5 percent after adjusting for inflation, the most since May.

President Barack Obama is trying to stem what may become the worst recession in seven decades with a stimulus plan that the administration estimates will create or save 3.5 million jobs and with mortgage initiatives.

The package includes tax cuts for most U.S. families and allocates billions of dollars toward cities to rebuild crumbling infrastructure while creating jobs. Last month he also introduced a plan to help as many as 9 million people restructure their mortgages to avoid foreclosure.

Inflation Measure

Commerce Department figures showed a price gauge tied to spending patterns increased 0.7 percent from January 2008, down from a 0.8 percent increase in the 12 months ended in December. The Fed’s preferred gauge of prices, which excludes food and fuel, advanced 1.6 percent from a year earlier, the smallest gain since December 2003.

Adjusted for inflation, spending increased 0.4 percent. Price-adjusted purchases of durable goods, such as autos, furniture, and other long-lasting items, rose 0.2 percent. Purchases of non-durable goods climbed 0.7 percent, and spending on services, which account for almost 60 percent of all outlays, rose 0.3 percent.

J.C. Penney Co., the third-largest U.S. department-store chain, on Feb. 20 forecast its first quarterly loss in almost five years. The company said it’s cutting inventory and halving the number of new stores it will open this year to contend with lower spending on clothing, jewelry, linens and rugs. Sales dropped 9.9 percent in the three months ended Jan. 31.