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U.S. consumer spending jumps but income growth tepid

U.S. consumer spending increased by the most in seven months in February as households shook off a rise in gasoline prices, suggesting the economy may not have slowed as much this quarter as economists had thought.

The Commerce Department said on Friday consumer spending rose 0.8 percent as spending on long lasting goods, like automobiles, rose sharply. January's spending was revised up to 0.4 percent from a previously reported 0.2-percent gain.

"So long as the consumer is spending, that's the biggie everyone is watching as they drive the economy. The economy is on a decent trajectory, but maybe not as strong as some would like," said Wayne Kaufman, chief market analyst at John Thomas Financial in New York.

U.S. stock index futures held onto earlier gains after the data, while U.S. Treasury debt prices turned higher. The U.S. dollar held earlier losses against the euro and yen.

Economists polled by Reuters had expected spending, which accounts for two-thirds of U.S. economic activity, to rise 0.6 percent last month.

When adjusted for inflation, spending rose 0.5 percent, the largest gain since September, after gaining 0.2 percent in January. That could cause analysts to raise their forecasts for 2-percent first-quarter growth.

The economy expanded at an annual rate of 3 percent in the final three months of 2011 as it got a boost from restocking by businesses, a stimulus that is expected to be lost this quarter.

Consumer spending rose at a 2.1-percent rate in the fourth quarter and last month's increase suggested consumers were taking surging gasoline prices in stride, and saving less to supplement their low income.

Earlier this week, Wal-Mart Stores said U.S. sales in the last two months had withstood rising gas prices and a tough economy that worried many of its shoppers.

In the Commerce Department report, spending on goods meant to last more than three years rose 1.6 percent in February after advancing 1.4 percent the prior month. Spending on services rose 0.4 percent. Unseasonably warm weather had curbed spending on utilities in the prior months.

Last month income edged up 0.2 percent after rising by the same margin in January. The increase was below economists' expectations for a 0.4-percent rise.

Taking inflation into account, the amount of income available to households after accounting for taxes and inflation, declined for a second month.

With spending outpacing income, the saving rate dropped to 3.7 percent, the lowest rate since August 2009. Savings slowed to an annual rate of $438.7 billion, the smallest level since October 2009, from $509.5 billion in January.

The report showed mild inflation pressures, which should help to support spending.

A price index for personal spending rose 0.3 percent in February after increasing 0.2 percent the prior month. In the 12 months through February, the PCE index was up 2.3 percent. It increased 2.4 percent in January.

A core inflation measure, which strips out food and energy costs, edged up 0.1 percent last month after rising 0.2 percent in January. In the 12 months through February, core PCE prices rose 1.9 percent after increasing by a similar margin in January.

The Federal Reserve would like this measure close to 2 percent.

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