U.S. consumer spending increased slightly faster than expected in January as consumers dipped into their savings amid a small rise in incomes, which could help sustain the economic recovery.
The Commerce Department said on Monday spending rose 0.5 percent, increasing for a fourth straight month, after advancing by an upwardly revised 0.3 percent in December. Consumer spending in December was previously reported to have increased 0.2 percent.
Analysts polled by Reuters had expected consumer spending, which normally accounts for over two-thirds of U.S. economic activity, to increase 0.4 percent in January.
The message is continuing progress for the economy, if not as fast as hoped, said Pierre Ellis, a senior economist at Decision Economics in New York.
U.S. stock index futures held their gains on the report, while government bond prices were flat. The U.S. dollar maintained its gains.
Consumer spending has been held back by stubbornly high unemployment and analysts worry the economy's recovery from the most painful downturn since the 1930s could stumble in the second half of the year if spending remains lackluster.
Analysts said it would be difficult for consumers to spend more unless income growth improved.
You can talk about confidence all day, but if the consumers don't have money they won't be able to spend it, said Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Florida.
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 percent annual rate in the fourth quarter from 2.8 percent in the prior period.
Spending adjusted for inflation rose 0.3 percent in January, picking up from a 0.1 percent gain the prior month. Personal income edged up 0.1 percent, a month after increasing 0.3 percent in December, the Commerce Department said. That was well below market expectations for a 0.4 percent increase.
Real disposable income fell 0.6 percent in January, the largest decline in seven months, after increasing 0.2 percent the prior month.
The 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 percent, the lowest since October 2008, from 4.2 percent in December.
Commerce Department data also showed the personal consumption expenditures price index, excluding food and energy, rising 1.4 percent from a year ago in January. The index, which is a key inflation gauge watched by the U.S. Federal Reserve, increased 1.5 percent in December.
(Reporting by Lucia Mutikani; Additional reporting by Ellen Freilich and John Parry in New York, Editing by Andrea Ricci)