October 26, 2020

Consumers spend more after incomes rise again

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WASHINGTON (AP) — Consumers earned a little more in January and spent most of the extra money.

The modest gains should keep the economy growing slowly. But they disappointed economists, who were expecting bigger increases after two months of strong hiring.

The Commerce Department said Thursday that consumer spending increased 0.2 percent in January. That’s better than December’s reading of no change.

Americans’ income rose 0.3 percent, the second straight monthly increase.

A separate report from the Labor Department suggested February was another strong month for hiring. Weekly applications for unemployment benefits dipped last week to 351,000.

The figure matched a four-year low set three weeks ago, leading many economists to predict employers added more than 200,000 net jobs in February for the third straight month.

After paying taxes and adjusting for inflation, incomes actually dipped in January. That reflected a big increase in tax payments last month, partly because of the expiration of a tax credit.

At the same time, inflation-adjusted spending was flat for the third straight month. That was partly because of warmer weather, which allowed people to spend less to heat their homes.

“Stronger job creation is not generating more spending,” said Jennifer Lee, an economist at BMO Capital Markets. She expects many economists will lower their forecasts for growth in the current quarter.

Hiring in December and January, rather than pay raises, helped boost income. That trend may fuel more consumer spending and support solid growth for the economy in coming months. Consumer spending accounts for 70 percent of economic activity.

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