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Consumer Spending in U.S. Increases by Most in Three Months

March 28 (Bloomberg) -- Consumer spending in the U.S. rose in February by the most in three months as incomes increased, a sign that economic momentum was returning as Americans recovered from an unusually harsh winter.

Household purchases, which account for almost 70 percent of the economy, climbed 0.3 percent after a 0.2 percent gain in January that was smaller than previously estimated, Commerce Department figures showed today in Washington. The median forecast of 79 economists in a Bloomberg survey called for a 0.3 percent gain. Incomes also increased 0.3 percent.

Americans were shaking off the effects of the coldest winter in four years as they ventured out to shop, supported by a job market that’s also picking up speed. Retailers from Gap Inc. to Macy’s Inc. are among companies that are waiting on warmer weather to gain clarity on the spending outlook.

“The momentum is shifting higher,” said Millan Mulraine, deputy head of U.S. research and strategy at TD Securities USA LLC in New York, who correctly forecast the gain in spending. “It’s moving in the right direction, though we are starting from a lower base than otherwise would have been thought.”

Stock-index futures held earlier gains after the report. The contract on the Standard & Poor’s 500 Index maturing in June climbed 0.2 percent to 1,844.7 at 8:43 a.m. in New York.

Survey Results

Projections for spending in the Bloomberg survey ranged from gains of 0.1 percent to 0.6 percent. The January reading was previously reported as an increase of 0.4 percent.

The Bloomberg survey median called for incomes to rise 0.3 percent.

Today’s report showed that after adjusting consumer spending for inflation, which generates the figures used to calculate gross domestic product, purchases increased 0.2 percent, also the best performance since November, after a 0.1 percent advance the previous month.

Spending on durable goods, including automobiles, increased 0.1 percent after adjusting for inflation following a 0.4 percent drop in January. Purchases of non-durable goods, which include gasoline, gained 0.3 percent.

Household outlays on services climbed 0.2 percent after adjusting for inflation. In addition to health care, the category also includes utilities, tourism, legal help and personal care items such as haircuts. This makes it typically difficult for the government to estimate accurately in the preliminary report.

Little Inflation

Today’s data also showed the core price measure, which excludes fuel and food, rose 0.1 percent in February from the prior month and was up 1.1 percent from a year ago, the same as in January.

Total prices, which are the ones tracked by Federal Reserve policy makers, also increased 0.1 last month and were up 0.9 percent from February 2013, the smallest year-to-year gain since October. That remains well below the central bank’s 2 percent goal.

Fed officials are monitoring the recovery as they pursue plans to gradually dial back their bond-buying program, known as quantitative easing. The central bank reduced its monthly pace of bond purchases by $10 billion, to $55 billion, according to a March 19 statement.

“Growth in economic activity slowed during the winter months, in part reflecting adverse weather conditions,” the Fed said in the statement. Even so, “there is sufficient underlying strength in the broader economy to support ongoing improvement in labor-market conditions.”

Job Gains

Payrolls climbed by 175,000 in February after a 129,000 a month earlier, Labor Department data showed earlier this month. The jobless rate rose to 6.7 percent from 6.6 percent, a five- year low, as more people entered the labor force and couldn’t find work.

Today’s report follows data earlier this month that showed sales at U.S. retailers rose 0.3 percent in February following declines in January and December.

The three months ended February marked the coldest winter since 2009-2010, according to the National Climactic Data Center at the National Oceanic and Atmospheric Administration. On Feb. 11-14, a winter storm brought snow and ice from the Southeast to the Northeast.

More than 450 of Gap Inc.’s stores were closed for at least one day in February due to weather, Katrina O’Connell, the retailer’s vice president of investor relations, said on a March 6 conference call. The San Francisco-based company reported that sales at stores open at least a year fell 7 percent in February, compared with a 3 percent gain a year earlier.

“Once the storms subsided, we saw sales trends improved in the second half of the month,” O’Connell said.

Weather’s Impact

The severe winter weather has made it difficult to detect underlying consumer trends, said Karen Hoguet, chief financial officer at Macy’s Inc. The department-store chain posted revenue of $9.2 billion for the quarter ended January, compared with $9.35 billion in the same period a year ago.

“We’ve had such up and down weather that it’s a little bit harder to know what’s weather, what’s the consumer, what’s really happening,” Hoguet said on a March 25 conference call. Even so, “I don’t think I would say that the consumer is overwhelmingly excited about spending.”

Disposable income, or the money left over after taxes, rose 0.3 percent after adjusting for inflation, the most since September. It climbed 0.2 percent in the prior month and was up 2.1 percent from February 2013.

Saving Rate

The saving rate was 4.3 percent in February, up from 4.2 percent the previous month. Wages and salaries increased 0.2 percent after rising 0.3 percent in January.

A report yesterday showed the U.S. economy grew more rapidly in the fourth quarter than previously estimated as consumer spending climbed by the most in three years, signaling the recovery had momentum heading into this year’s harsh winter.

GDP grew at a 2.6 percent annualized rate from October through December, more than the 2.4 percent gain reported last month, figures from the Commerce Department showed. Consumer purchases advanced at a 3.3 percent rate in the fourth quarter, the most since the last three months of 2010 and surpassing the 2.6 percent gain previously reported.

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