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Tuesday May 31st, 2016 10:30AM

Consumer spending up 0.3 percent

By The Associated Press
WASHINGTON (AP) -- Americans spent slightly more in February but the gain still left consumer spending growing at a modest pace, held back by severe winter weather.

Consumer spending rose 0.3 percent in February following a 0.2 percent rise in January, the Commerce Department reported Friday. The spending increases would have been even weaker except for a surge in spending on utility bills. In February, spending on durable goods such as autos actually dropped as consumers stayed away from auto dealerships. Service spending, which covers utility payments, rose.

Analysts say consumer spending, which accounts for 70 percent of economic activity, slowed significantly in the current quarter and will depress overall economic growth. But they are looking for a rebound in the second quarter.

The report showed that after-tax income was up 0.3 percent in February, the same as in January.

The saving rate edged up slightly to 4.3 percent of after-tax income compared to January, when the saving rate was 4.2 percent.

The report showed that inflation remains very low. An inflation gauge tied to consumer spending was up just 0.9 percent in February compared to a year ago, significantly below the 2 percent target set by the Federal Reserve.

The Fed last week approved another reduction in its monthly bond buying, which the central bank is doing to lower long-term interest rates and boost economic growth. But some economists are concerned that if the Fed removes its support too quickly, it could undermine efforts to get prices rising closer to the target.

Economists expect that spending will rebound in the April-June period, helping to boost overall economic growth to its strongest pace in nearly a decade.

Many analysts foresee the economy growing 3 percent for the year, after a weak first quarter. It would be the most robust annual expansion since 2005, two years before the Great Recession began.

The National Association for Business Economics is predicting that the economy will grow 3.1 percent this year, far higher than the lackluster 1.9 percent gain in 2013.

If that forecast proves accurate, it would make 2014 the strongest year since the economy, as measured by the gross domestic product, expanded 3.4 percent in 2005. Since the Great Recession ended in June 2009, annual growth over the past four years has averaged a weak 2.2 percent.

The U.S. economy has been hit by a series of blows since then from a prolonged European debt crisis which hurt U.S. exports to three years of Washington budget fights, which fueled uncertainty about the government's spending and tax policies.

Tax increases and deep spending cuts that took effect in 2013 subtracted an estimated 1.5 percentage points from growth last year.

With Congress having reached a budget agreement and a deal to raise the government's borrowing limit, companies now have more certainty about federal fiscal policies and because of that, analysts say businesses are likely to boost their hiring and investment spending.

The number of people seeking unemployment benefits last week reached its lowest level since November - an encouraging sign that hiring should be picking up. In February, U.S. employers added 175,000 jobs, far more than in the two previous months. With more people working, more consumers will have money to spend to boost the economy, analysts believe.
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