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U.S. spending, income rise
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March 30, 2001: 11:21 a.m. ET
Consumer spending up 0.3%, incomes 0.4% in February; savings rate negative
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NEW YORK (CNNfn) - Consumer spending rose in February in the United States but at a much slower pace than the month before, the government said Friday, a sign that recent gloomy economic news could be affecting Americans' buying habits.
Spending rose 0.3 percent after jumping a revised 1 percent in January, while personal incomes grew 0.4 percent after rising a revised 0.5 percent, the Commerce Department said. The savings rate hit a negative 1.3 percent. The numbers matched Wall Street forecasts, according to a survey of economists by Briefing.com.
"People may not be feeling all that good, but they are trying to cheer themselves up," Maureen Allyn, chief economist with Zurich Scudder Investments, said of the spending report. "They're not constrained yet, but I do think it is going to set in. The bear market has taken a big, big bite out of wealth, and history tells us when that happens people do sort of cut back."
Allyn said a rise in car sales, spurred by heavy incentives by automakers, led the spending increase in February, along with recreational spending.
Separately, a key report showed a dramatic drop in manufacturing activity in March, adding to fears that the economic slowdown is occurring faster than anticipated.
The Chicago Purchasing Management Index fell to 35, its lowest level since March 1982, from 43.2 in February.
Wall Street showed scant reaction to the data. Stock prices edged higher in early trading.
Consumers spend on autos, recreation
Consumers were able to spend a bit more because they were taking home a bit more for the fourth straight month. Personal income rose to $8.54 trillion from $8.50 trillion in January, the department said.
Spending rose to $7.00 trillion from $6.98 trillion, led by higher purchases of autos, refrigerators and other goods meant to last at least three years, as well as services.
The negative 1.3 percent savings rate means that for every $100 consumers took home in after-tax income, they spent $101.30.
Federal Reserve Chairman Alan Greenspan has said one of the biggest factors in determining whether the economy slumps into a recession is how well consumer confidence holds up during the current slowdown. Confidence is important, since consumer spending fuels about two-thirds of the nation's economy.
However, manufacturing dropped sharply in March as companies scaled back production and inventory to keep pace with slackening consumer demand. Manufacturers have been laying off workers by the thousands in the process.
However, a survey by the University of Michigan showed consumer confidence rising slightly in March to 91.5 from 90.6 in February, James Annable, chief economist at WingspanBank.com said.
Annable said the numbers suggest that despite being concerned about the overall picture, consumers still feel pretty good about their own situations, and are continuing to spend. That coupled with the news that manufacturers are getting inventory and production more in line with demand, mean things could soon improve.
"There was an auto industry correction and a high tech inventory correction, and if we can get through that without tipping the economy into a recession then we can get through this," Annable said.
The Fed, the nation's central bank, has cut interest rates aggressively three times this year in a bid to prevent a recession. Lower rates make borrowing cheaper, encouraging consumers and businesses to spend, typically boosting economic growth.
"The Fed is very happy to see this kind of stabilization, but they're going to be worried about inflation and credit," Allyn said. "Honestly, I think the Fed understands how fragile a position the economy is in because when you slow down this fast it sets a lot of stuff in motion. They want to get ahead of that and make sure it doesn't get worse."
-- from staff and wire reports 
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