WASHINGTON (AP) — Consumers earned more and spent more in February, helped by a stronger job market that is offsetting some of the drag from higher taxes.
The Commerce Department said Friday that consumer spending rose 0.7 percent in February from January. It was the biggest gain in five months and followed a revised 0.4 percent rise in January, which was double the initial estimate.
Americans were able to spend more because their income rose 1.1 percent last month. That followed January’s 3.7 percent plunge and December’s 2.6 percent surge. The huge swings reflected a rush to pay bonuses and dividends in December before taxes increased.
After-tax income also increased 1.1 percent last month. That allowed consumers to put a little more away. The saving rate increased to 2.6 percent of after-tax income, up from 2.2 percent in January.
The gains in spending and income follow other signs of an economy gathering momentum. Hiring is up, businesses are spending more, the stock market is hitting record levels and the housing recovery is strengthening.
More spending by consumers should boost economic growth in the January-March quarter after a lull at the end of last year. Consumer spending accounts for 70 percent of economic activity.