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Consumer Spending Flat In February

"Slumdog Millionaire" child star Azharuddin Mohammed Ismail, 10, left greets director Danny Boyle as he leaves after a press conference in Mumbai, India, Wednesday, May 27, 2009.
AP Photo/Rajanish Kakade
Consumer spending was flat in February — for the second straight month — as war uncertainties, job worries and higher energy prices made people more tightfisted.

Spending on cars and other big-ticket items was cut sharply for the second month in a row.

The Commerce Department's report Friday showing that consumers held a tight grip on spending in February was actually a better showing than economists had expected. They were predicting consumers would trim spending by 0.2 percent.

And, January's flat reading on spending — based on revised figures released Friday — also was a bit of an improvement from the government's initial estimate that consumers cut spending by a 0.1 percent during that month.

Americans' incomes, including wages, interest and government benefits, rose by a modest 0.3 percent in February, down from a 0.4 percent advance the month before.

The figures show that consumers, the main force keeping the economy going, don't have the hardy appetite for spending that they have previously displayed. And, they are thinking twice about making big-ticket purchases.

However, consumer sentiment bounced back "as soon as the war started," according to research at the University of Michigan, reported CBS MarketWatch. Economists were expecting the index to remain close to 75.0. The sentiment index was at 75.6 before the war and 85.1 after the war started, but just a fifth of interviews were conducted after the war began.

"We very much doubt that the real trend rate of growth is anything like as weak as these numbers suggest," Ian Shepherdson, chief U.S. economist at High Frequency Economics, told CBS MarketWatch. "This report looks grim but don't ignore the weather effect."

Although bad winter weather was a big factor dampening sales at the nation's retailers in February, other economists said that consumers are turning more cautious amid the muddled economic climate.

A worsening labor market has made people worry about keeping their jobs. In February, the nation's unemployment rate rose to 5.8 percent as the economy lost a whopping 308,000 jobs. Economists believe the jobless rate will move up to 6 percent in March and higher in coming months. The government releases the employment report for March next week.

And a turbulent stock market, higher energy prices and uncertainties stemming from the war with Iraq have made consumers nervous about their own financial prospects, economists said.

Still, "It would be premature to conclude that consumers are in a full-blown retrenchment," added Jade Zelnik, chief economist at RBS Greenwich Capital.

In February, consumers cut spending on big-ticket "durable" goods, such as cars by 2.2 percent, on top of a 4.9 percent cut in January.

Spending on nondurables, such as food and clothes, was flat in February, compared with a 1.3 percent rise in January.

And, spending on services, including gas and electric utilities, rose 0.5 percent in February, up from a 0.3 percent gain, reflecting higher energy prices.

Americans' disposable — or after-tax income — rose 0.2 percent in February, compared with a 0.4 percent advance in January.

With income growth outpacing spending, the nation's personal savings rate — savings as a percentage of after-tax income — rose to 4 percent in February, from 3.8 percent in January.

Federal Reserve policy-makers last week held interest rates at 1.25 percent, a 41-year low, saying they would closely monitor economic developments surrounding the war. Economists said the Fed probably would lower rates were the economy show signs of backsliding into recession.

President Bush has called for $726 billion in tax cuts through 2013 to give the economy a lift. The Senate, however, approved a budget for next year that would limit the tax reductions to $350 billion. The House passed the full amount asked by the president.