U.S. consumer spending rose slightly in January as consumers earned more money, the government said Thursday in a report that suggests the economy will grow at a modest pace.
The Commerce Department reported that consumer spending-which accounts for 70 percent of U.S. economic activity-rose 0.2 percent in January following no change in December.
Incomes rose 0.3 percent in January, the second consecutive month of gains. Last year, income barely kept pace with inflation, so the increases seen recently are a positive sign that consumers will have more money to spend.
Income in January and December was boosted by stronger hiring, not pay increases. Still, the trend should fuel more consumer spending and support solid growth in the coming months.
Consumer spending rose 2.1 percent in the final three months of last year, and economists expect a similar increase in the current quarter, which should help the economy grow at about a 2 percent pace in the January-March period.
Most economists expect growth should rise to 2.5 percent this year. Such a pace would be healthy in normal conditions but is modest following the worst recession since the second world war.