Ahead Of The Bell: US Consumer Spending

WASHINGTON (AP) â¿¿ Consumers likely earned more and spent more in February, helped by a stronger job market that has offset some of the drag from higher taxes.

Economists forecast that consumer spending rose 0.6 percent in February, according to a survey by FactSet. That would be up from a 0.2 percent gain in January. Income is expected to have risen 0.7 percent, after a 3.6 percent decline in January.

The Commerce Department will release the report at 8:30 a.m. EDT Friday.

Expectations are high after a separate report showed Americans spent 1.1 percent more at retailers in February compared with January. Much of the increase reflected a spike in gas prices. But even excluding the volatile categories of gas, autos and building supply stores, so-called core retail sales rose strongly.

Sales rose last month despite an increase in Social Security taxes, which took effect in January and has reduced take-home pay this year for nearly all Americans receiving a paycheck. A person earning $50,000 a year will have about $1,000 less to spend in 2013. A household with two high-paid workers will have up to $4,500 less.

Consumers were able to keep spending in part because companies have stepped up hiring and are slowly but steadily increasing wages.

Employers have added an average of 200,000 jobs a month since November. That helped lowered the unemployment rate to a four-year low of 7.7 percent in February. Economists expect similar strong job gains in March.

Solid job growth and more spending are helping the economy rebound from a temporary lull at the end of last year. Consumer spending drives roughly 70 percent of economic activity.

Most economists predict the economy is growing at an annual rate of roughly 2.5 percent in the current January-March quarter. That would be a vast improvement from the 0.4 percent growth rate in the October-December quarter, which was held back by slower company stockpiling and the sharpest defense cuts in 40 years.

A recent survey suggests consumers are still a little worried about the impact higher taxes and gas prices could have on their finances. Those fears drove a measure of consumer confidence down sharply in March from February.

The survey was also taken shortly after $85 billion in automatic government spending cuts began to take effect on March 1. The Congressional Budget Office has estimated that the combination of higher taxes and government spending cuts will likely trim economic growth by about 1.5 percentage point this year.

Still, most other signs point to an economy that is gaining momentum. Businesses are investing more in equipment and machinery, which has given factories a lift after a disappointing 2012.

And the housing recovery appears to be strengthening. In February, sales of previously occupied homes rose to the highest level in more than three years. The gains have helped lift home prices, which have made Americans feel wealthier.

Stock prices have also surged. On Thursday, the Standard & Poor's 500 index closed at a record high of 1,569. That surpassed the previous record of 1,565 set in October 2007, a year before the peak of the financial crisis.

Three weeks ago, the Dow Jones industrial average beat its own 2007 record.

Markets will be closed when the consumer spending and income report is released on Good Friday.

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