U.S. Economy: Spending Growth Slowed in February

American consumers’ spending slowed in February and their confidence remained near a three-decade low this month, reflecting the toll of a deteriorating job market.

Purchases advanced 0.2 percent after climbing 1 percent in January, the Commerce Department said today in Washington. The Reuters/University of Michigan final index of consumer sentiment was 57.3 in March after 56.3 in February.

Taken together with the spending jump in January, today’s figures offer a picture of an economy that remains in recession, while no longer worsening. With a separate report showing California and six other states have unemployment rates above 10 percent, the data make it critical that Federal Reserve and Obama administration stimulus actions take effect by mid-year.

“We’re certainly not out of the woods by any means, but perhaps we’re seeing some signs of stabilization,” Jay Bryson, a global economist at Wachovia Corp. in Charlotte, North Carolina, said in a Bloomberg Television interview.

A report yesterday from Best Buy Co., the largest U.S. electronics retailer, matched Bryson’s assessment. The Richfield, Minnesota-based company reported that profit fell less than analysts forecast for the quarter ended Feb. 28. Chief Executive Officer Brad Anderson said “we were pleased when the quarter finished stronger than it began.”

Stocks Drop

The Standard & Poor’s 500 Stock Index fell 2 percent to close at 815.94. Treasuries fell, with yields on benchmark 10- year notes at 2.76 percent.

Much of the February gain in consumer spending was because of an increase in prices, leaving so-called real purchases with a decline for the month. Economists had forecast spending would rise 0.2 percent, after an originally reported 0.6 percent gain the prior month, according to the median of 68 estimates in a Bloomberg News survey.

Incomes fell 0.2 percent, after a 0.2 percent increase in January. The survey median projected a 0.1 percent decrease.

Because spending rose as earnings fell, the savings rate decreased to 4.2 percent from 4.4 percent in January. As recently as August, the rate was at 0.8 percent, indicating Americans are trying to boost savings as unemployment climbs.

The Reuters/University of Michigan index continues to hover near the 28-year low of 55.3 reached in November. The median forecast was 56.8. The index of consumer expectations six months from now, which more closely predicts the direction of spending, rose to 53.5 from 50.5 in February.

‘Bottoming Out’

“Overall confidence, even though it’s at low levels, is kind of bottoming out,” said Brian Bethune, chief financial economist at IHS Global Insight in Lexington, Massachusetts. “A lot of incentives are at play to get consumers to do things they ordinarily wouldn’t” given the downturn, he said, referring to the fiscal stimulus and efforts to revive credit.

President Barack Obama today meets with chief executive officers of some of the nation’s biggest banks, seeking support for his plan to stabilize the financial system.

Today’s Commerce report showed inflation accelerated. The price gauge tied to spending patterns rose 1 percent from February 2008, up from a 0.8 percent 12-month gain in January. The Fed’s preferred gauge of prices, which excludes food and fuel, climbed 1.8 percent, more than forecast.

Adjusted for inflation, spending dropped 0.2 percent, following a 0.7 percent gain the prior month.

Disposable income, or the money left over after taxes, decreased 0.1 percent, after rising 1.6 percent the previous month. Adjusted for inflation, disposable income dropped 0.4 percent.

Durable Goods

Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, dropped 1.5 percent last month after rising 3.2 percent in January. Purchases of non-durable goods and services were unchanged.

Still, the inflation-adjusted spending so far this quarter is higher than the fourth-quarter average, setting the stage for a gain after plunging late last year.

The economy shrank in the fourth quarter at a 6.3 percent annual pace, the worst performance since 1982, in what may be the depths of the recession. Consumer spending fell at a 4.3 percent rate, marking the first back-to-back declines in excess of 3 percent since records began in 1947.

“We’re seeing a minimal amount of consumption, as people are just spending on bare necessities,” Lindsey Piegza, an economic analyst at FTN Financial in New York, said before the report. “You can’t have stable consumer spending until you have stable incomes or wealth accumulation.”

Carmakers General Motors Corp. and Chrysler LLC are still counting on government aid for survival. U.S. auto sales in February slid to the lowest rate since December 1981, led by a 53 percent plunge for Detroit-based GM.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net