After reporting a sharp drop in personal income in the previous month, the Commerce Department released a report on Friday showing that income rebounded by more than expected in February. Personal spending growth also exceeded economist estimates.
The report said personal income increased by 1.1 percent in February after tumbling by 3.7 percent in January. Economists had expected income to increase by about 0.9 percent.
Disposable personal income, or personal income less personal current taxes, also jumped by 1.1 percent in February compared to a 4.0 drop in the previous month.
The Commerce Department noted that the sharp drop in disposable personal income in January reflected the expiration of the payroll tax holiday as well as the acceleration of bonus and dividends payments in December in anticipation of higher taxes.
Excluding these special factors and others, disposable personal income increased by 0.4 percent in February after edging up by 0.1 percent in January.
The report also showed that personal spending increased by 0.7 percent in February following a 0.4 percent increase in January. The increase came in slightly above economist estimates for 0.6 percent growth.
Real spending, which is adjusted to remove price changes, rose by 0.3 percent in February, matching the increase in the previous month.
Jennifer Lee, senior economist at BMO Capital, said the increases in real spending suggest that "consumer spending grew over 3% annualized in the first quarter, which would be the largest increase in three years. That's good news."
With income increasing at a faster rate than spending, personal saving as a percentage of disposable personal income climbed to 2.6 percent in February from 2.2 percent in January.
The Commerce Department also said its reading on core consumer prices, which exclude food and energy prices, rose at an annual rate of 1.3 percent in February, unchanged from the previous month.
by RTT Staff Writer
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