U.S. consumer spending increased faster than expected in January as consumers cautiously used their savings amid a small rise in incomes. Analysts believe the uptick will help sustain the economic recovery.
The Commerce Department reported that spending rose 0.5%, up for a fourth consecutive month, after advancing by 0.3% in December. Consumer spending in December was previously reported to have increased 0.2%.
Consumer spending has been limited by high unemployment. Some analysts fear the economy's recovery could stumble in the second half of the year if spending remains lackluster. It would be difficult for consumers to spend more unless income growth improved.
The economy expanded strongly in the second half of 2009, driven by a sharp slowdown in the rate at which business liquidated inventories. Analysts expect stock rebuilding and continued improvement in business spending to support growth into the first half of 2010.
Consumer spending rose at a modest 1.7% annual rate in the fourth quarter from 2.8% in the prior period. Spending adjusted for inflation rose 0.3% in January, picking up from a 0.1% gain the prior month.
A slight drop in income pulled the savings rate down to an annual rate of $367.2 billion, the lowest level since February 2009. The savings rate fell to 3.3%, the lowest since October 2008, from 4.2% in December.