- The Washington Times - Tuesday, March 3, 2009

Consumer spending increased in January for the first time in seven months, and personal income climbed for the first time since September, the government reported Monday. But analysts attributed the gains to extenuating or temporary factors and said neither increase was likely to be sustainable in the coming months.

Meanwhile, construction spending plunged by 3.3 percent in January, the Commerce Department reported. And economic activity in the manufacturing sector declined for the 13th consecutive month in February, the Institute for Supply Management said.

Personal income increased 0.4 percent during the first month of the year, helping to fuel a 0.6 percent rise in consumer spending, the Commerce Department reported Monday. Disposable income, which is the income available for consumption and saving after taxes are paid, jumped 1.7 percent in January, but this gain was also downplayed by analysts.

After adjusting for inflation, consumer spending increased 0.4 percent. However, all of the increased spending went for food and energy, mostly to heat homes as temperatures dipped to unseasonably low levels even for January.

“Don’t be fooled by the rise in income and consumption this month,” said Nigel Gault, chief U.S. economist for IHS Global Insight. “Household wealth continues to fall rapidly, employment is falling steeply and consumer sentiment is at or near all-time lows. These are not ingredients of a consumer recovery.”

Personal-income gains in January resulted from a 5.8 percent cost-of-living increase for Social Security, a jump in unemployment benefits and pay increases for federal employees and military personnel. Wages and salaries in private industries actually declined for the fifth month in a row in January, including a second consecutive drop of 0.5 percent.

Even the sizable jump in after-tax income was largely related to the realization that the deepening recession has led to larger tax refunds or smaller tax payments this year than expected.

“Gains in nominal income are not sustainable, as the labor market is rapidly deteriorating and the unemployment rate is expected to peak above 9 percent in early 2010,” said Ryan Sweet, an economic analyst at Moody’s Economy.com.

“Illuminating consumer angst, the savings rate spiked to 5 percent in January,” he added. “Rising savings will come at the expense of [consumer] spending,” which accounts for more than 70 percent of gross domestic product.

Since the recession began in December 2007, the private sector has shed more than 3.7 million jobs, including 1 million jobs in manufacturing. Job losses in construction during each of the last 19 months have totaled nearly half a million. Monday’s reports reveal that the outlook for both industries remains dismal.

New export orders in manufacturing, for example, fell for the fifth month in a row as trading partners have been hammered by the same credit crisis and financial-market turmoil that have clobbered the U.S. economy.

For more than a year, the home-building industry has been in free fall. In January, private, nonresidential construction declined at a faster rate than residential construction for the first time in this recession.

As manufacturing and construction continue to contract, analysts are revising upward their estimates for job losses in February. The Labor Department will report those numbers on Friday.


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