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2/26/2016 10:00:00 AM Write a Letter to the Editor Write a letter to the Editor

Consumer Spending Rises in January by Most in Eight Months

John Fraissinet/Flickr

Consumer purchases climbed in January by the most in eight months, fueled by faster earnings growth and indicating the biggest part of the U.S. economy gained momentum at the start of 2016.

The 0.5% advance followed a 0.1% gain the prior month, a Commerce Department report showed Feb. 26. The January figure exceeded the 0.3% median forecast in a Bloomberg News survey. Incomes also climbed 0.5%, more than projected. The Federal Reserve’s preferred measure of inflation rose by the most since October 2014.

Steady hiring, cheap gasoline and rising home values are powering Americans’ ability to boost spending, which accounts for almost 70% of the economy. Households are broadening out purchases beyond big-ticket items such as cars and houses, which bodes well at a time manufacturing is weak.

“It’s a very positive story for consumers,” Scott Brown, chief economist at Raymond James Financial Inc. in St. Petersburg, Florida, said before the report. “They’ve got job growth, wage growth and low fuel prices. Spending will be strong enough to carry the economy through this year and avoid a recession.”

A separate report from the Commerce Department, also issued Feb. 26, showed gross domestic product expanded at a revised 1% annualized rate in the fourth quarter, faster than the previously reported 0.7% advance and reflecting a higher value of business inventories.

Projections for January consumer spending ranged from a decline of 0.1% to a gain of 0.5%, according to the Bloomberg News survey. The previous month’s reading initially was reported as unchanged.

The Bloomberg survey median for incomes called for a rise of 0.4%, after a previously reported 0.3% gain. The January gain was the most since June.

Adjusted for the effect of price changes, spending increased 0.4%, the most since May.

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By Shobhana Chandra
Bloomberg News

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