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WASHINGTON (AP) —Personal incomes rose more than expected in December and consumerspending increased for the third straight month, helping the U.S.economy slowly recover from the worst recession in decades.
Still,the increases were modest, reflecting the reluctance of many householdsto spend amid tight credit and high unemployment. Widespreadjoblessness is also limiting wage and salary growth, as firms find iteasier to retain workers without raising compensation.
"Consumerscontinue to save far more than in recent years and allocate theirspending very carefully," Julia Coronado, an economist at BNP Paribas,wrote in a note to clients.
The Commerce Department said Mondaythat incomes rose by 0.4 percent, the sixth increase in a row. That'sslightly better than analysts' expectations of 0.3 percent growth.
Incomegrowth was spurred by a large, one-time social security payment, thedepartment said. Wages and salaries rose by only 0.1 percent, or $9.1billion, after increasing 0.4 percent, or $27 billion, in November.
Consumerspending, meanwhile, increased by 0.2 percent, less than analysts'forecasts of 0.3 percent. The department also revised November's figureto show a 0.7 percent increase in spending, higher than the initialestimate of 0.5 percent.
Consumer spending is closely watchedbecause it accounts for about 70 percent of total economic activity.Spending has grown in the past six months but consumers remain cautiousas they seek to rebuild savings battered by a steep decline inhousehold wealth.
Americans saved 4.8 percent of their incomes inDecember, the department said, up from 4.5 percent the previous month.That's up sharply from the spring of 2008, when the savings rate fellbelow 1 percent.
Rising spending helped the economy grow at arapid pace in last year's fourth quarter, the department said lastweek. Consumer spending increased by 2 percent in the October toDecember period, after a 2.8 percent increase in the third quarter.
Thathelped boost the U.S. gross domestic product, the broadest measure ofthe economy's output, by 5.7 percent in the fourth quarter, thedepartment said. It was the fastest growth in six years. The economygrew at a 2.2 percent rate in the third quarter after a record fourstraight quarters of decline.
Much of the growth was powered byincreased production as companies stabilized their inventorystockpiles. Inventories were cut sharply in the recession as salesslowed. As firms rebuild their inventories, the economy should benefit.But once inventories are in line with sales, that support for theeconomy will disappear.
Many economists are concerned growth willlikely sputter to a 3 percent pace or below in the current quarter oncegovernment stimulus and inventory restocking fades. Many economistsexpect the economy to grow at about a 2 percent pace this year.
Thatlikely won't be fast enough to reduce the unemployment rate, whichcurrently stands at 10 percent. Unemployment will likely rise forseveral more months, most economists say, and remain near 10 percentthrough the end of the year.
A price gauge tied to consumerspending edged up 0.1 percent in December, below the 0.3 percent pacein November. Excluding volatile food and energy costs, it ticked up 0.1percent.