American consumer spending reverses six-month trend to register 0.6 per cent increase

In a temporary respite to the recession assailing the American economy, consumer spending rebounded in January, snapping six months of declines, and incomes rose unexpectedly, boosted by salary increases for government employees, a government report showed on Monday.

The US Commerce Department said spending rose 0.6 per cent, the largest increase since May, after falling an unrevised 1 per cent in December, and beating economists' expectations for a 0.4 per cent advance.

The January increase was driven by a sharp 1.3 per cent rise in purchases of nondurable goods led by much higher spending on food. Durable goods posted a tiny 0.1 per cent increase, as Americans again avoided spending on cars and other large items. While the 0.6 per cent increase in consumer spending was the largest since May, analysts do not expect the strength to continue amid a recession that's already the longest in a quarter-century.

Incomes advanced 0.4 per cent, also posting the biggest increase since May, after December's 0.2 per cent decrease, and above market expectations for a 0.2 per cent decline. The department attributed to rise in incomes to pay raises for federal civilian and military employees, as well as cost-of-living adjustments to several government transfer payments programs. It said excluding these factors, incomes increased by 0.2 per cent in January.

The current downturn has also prompted Americans to save more of their money. Savings jumped to an annual rate of $545.5 billion, the highest level since monthly records began in 1959. The saving rate surged to 5 per cent in January, the biggest advance since March 1995, as households uncertain about the economy prefer to conserve their cash.

Data last week showed the US economy shrank at a 6.2 per cent annual rate in the fourth quarter, the deepest contraction since early 1982, when it was in the throes of recession that lasted 16 months. Consumer spending, which accounts for about 70 per cent of total economic activity, was falling at an annual rate of 4.3 per cent during the fourth quarter, the biggest drop since the second quarter of 1980.