Consumer spending up 0.7% in February

Marketplace Staff Mar 28, 2011
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Consumer spending up 0.7% in February

Marketplace Staff Mar 28, 2011
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JEREMY HOBSON: Now to this morning’s news on overall consumer spending in February. It’s up 7/10 of a percent. That’s the fastest rise in four months.

Let’s bring in our regular Monday analyst Julia Coronado, chief economist at the investment bank BNP Paribas. She’s with us live from New York. Good morning.

JULIA CORONADO: Good morning.

HOBSON: So how is consumer spending rising so fast given the high cost of gas?

CORONADO: Well actually that’s one of the reasons the spending numbers are so strong. Consumers have to spend more to fill their tank and to fill their grocery basket. And that shows up as stronger spending. If we strip out the effect of higher prices, spending only rose a more moderate 3/10 of a percent. And on average, so far this year, it’s rising at about half the pace it was at the end of last year. So we are seeing consumers slow down a little bit on balance.

HOBSON: Julia, this is the first consumer spending number that really takes into account those new pay roll tax cuts that Congress passed late last year. Shouldn’t this number be better given those tax cuts?

CORONADO: Well, that would be one view of the world. Another view is that consumers are actually very cautious. And careful. And what they’re doing apparently with their tax cut is they’re saving a lot of that. So you give them a temporary tax cut, and they might just decide to pay down a credit card with it instead of rush out and spend some more. And that’s what we’re seeing. The saving rate has actually risen so far this year rather than fallen.

HOBSON: Julia Coronado, chief economist with the investment bank BNP Paribas, thanks as always

CORONADO: Any time.

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