- The Washington Times - Monday, March 2, 2009

Consumer spending increased a surprising 0.6 percent in January, the government reported Monday, in a bright spot of good news through the gloom of the crisis in the financial sector of the economy.

The boost came after six consecutive months in which personal spending dropped as the recession bit deeper, resulting in the worst decline in the gross domestic product in the final three months of 2008, at an annualized rate, since 1982. The GDP fell 6.2 percent.

Consumer spending accounts for about 72 percent of the economy. The GDP represents the total output of goods and services.

The January increase followed a 0.5 percent decline in consumer spending in December, adjusted for inflation. If the 0.6 percent rise in January is adjusted for inflation, the actual increase is 0.4 percent, said Ken Goldstein, an economist with the Conference Board in New York City.

If the two months are taken together, it indicates that consumer spending has been virtually flat, he told The Washington Times.

“That’s actually good news,” Mr. Goldstein said. “We may see this through the spring and summer. This is a relatively positive story because of everything else that’s going on.”

The Conference Board monitors the index of leading economic indicators, which shows the direction and health of the economy.

By “everything else,” Mr. Goldstein largely was referring to the crisis in the financial industry, which he characterized as “a mess.”

That “mess” has contributed to the inability of consumers to spend even more money because the tight credit situation has made it extremely difficult for people to get a loan to buy a vehicle or make other major purchases, including buying a home. The continuing decline in consumer spending has been a major contribution to the depth of the recession.

A sharp 1.3 percent increase in purchases of nondurable goods such as food was a major reason for the jump in consumer spending in January, the Commerce Department said. Spending on durable goods such as appliances and other items that last at least three years increased 0.1 percent.

At the same time, the Commerce Department reported that personal incomes rose 0.4 percent in January. One of the reasons was the cost-of-living increase for those receiving Social Security payments. Another was a pay raise for the military and federal civilian workers.

In addition, the agency said that the personal savings rate jumped to 5 percent, the highest level since 1995.


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