US consumers cut spending plans

Retailers are suffering as shoppers rein in spending

US consumer spending was flat in February as falling house prices and tougher access to credit took their toll, an official report shows.

The Commerce Department said spending rose by 0.1% last month, but when the effect of inflation was stripped out it remained static.

Analysts said the figures were a clear sign that shoppers are cutting back amid fears of a recession.

The Federal Reserve and the White House have taken action to lift the economy.

Stagnating economy

The figures also showed that personal incomes rose by 0.5% in February, which was better than expected.

A key gauge of inflation, the personal consumption expenditure index, rose by 0.1% when food and energy costs were excluded.

There is little prospect of any recovery in spending. Just the reverse in fact Paul Ashworth, Capital Economics

Some analysts were modestly encouraged by the benign inflation figures, which suggested that the Federal Reserve, the US central bank, still had room to cut interest rates below 2.25% to boost consumer spending and encourage banks to offer better credit deals.

"Income remains buoyed, with the trend at a moderate pace not yet consistent with recession," said TJ Marta, fixed income strategist, RBC Capital Markets.

"In contrast, spending is showing signs of rapid deterioration. The contrast reflects consumers getting hit by lack of financial intermediation and housing wealth losses, as compared to job losses."

The consensus was that the weak spending figures added to the evidence that the economy was, at best, stagnating and at worst, contracting.

"Real consumption is basically unchanged over the past three months," said Paul Ashworth, an economist at Capital Economics.

"With confidence plummeting, the labour market weakening and house prices nose-diving, there is little prospect of any recovery in spending. Just the reverse in fact."