Nervous U.S. consumers keep wallets closed

Nervous U.S. consumers keep wallets closed
Weak spending highlights risk of recession

Last Updated: Friday, March 28, 2008 | 9:55 AM ET CBC News

American consumers, jolted by a credit crisis, job cuts and soaring energy costs, turned in their weakest spending performance in 17 months in February, further evidence that recession risks are increasing.

The U.S. Commerce Department said Friday that consumer spending edged up by just 0.1 per cent last month, the poorest showing since September 2006. And if the effects of inflation are removed, spending was flat in February, the third consecutive month of sluggish activity.

The performance of the consumer is closely watched since consumer spending accounts for two-thirds of U.S. economic activity.

Economists said sustained weakness in this area is one of the most worrisome signs that the economy could be tipping into a recession.

The prolonged slump in housing, rising job layoffs, soaring energy costs and a severe credit crisis are taking their toll on consumer confidence. All of these troubles are causing consumers to cut back on their purchases.

The 0.1 per cent gain in spending was in line with expectations.

Personal incomes rose by a better-than-expected 0.5 per cent in February — a surprise given that employers cut jobs for a second consecutive month.

A key inflation gauge tied to consumer spending showed a 0.1 per cent gain in February, excluding energy and food.

Over the past 12 months, this gauge, which is closely watched by the Federal Reserve, is up by two per cent, within the Fed's comfort zone of one to two per cent for core inflation.