Construction spending reaches 11-month high

WASHINGTON – Consumers spent more in February while construction spending rose by the largest amount in 11 months, the government said Friday, in reports that should dispel some of the concerns about the health of the economy.

The Commerce Department reported that consumer spending, bolstered by strong income gains, was up 0.6 percent last month, the best showing since December. Personal income also rose by 0.6 percent. Both figures were double what analysts had expected.

In a separate report, the department said that construction spending rose by 0.3 percent last month, the best showing since a 1 percent jump in March 2006. Until the February increase, construction had either fallen or had been flat since the big rise last March.

Strong gains in construction of hotels, shopping centers and state and local government projects offset the 11th consecutive decline in residential construction.

The increase in construction was a surprise. Economists had expected the continued weakness in housing to result in a 0.4 percent overall decline.

Housing construction did fall by a sharp 1 percent after dropping 1.7 percent in January, but nonresidential spending rose by 2.3 percent and state and local projects increased 0.6 percent to an all-time high.

The strength in consumer incomes and spending and construction should help to alleviate recession fears that have been growing because of a deeper-than-expected slump in housing and troubles in the domestic auto industry.

But analysts said they still looked for the economy, which has turned in a sluggish performance for the past year, to slow even further in the January-March quarter from a lackluster 2.5 percent growth rate in the final three months of 2006. Some economists believe growth will dip below 2 percent in the current quarter before rebounding a bit in the spring.

Analysts noted that much of the strength in consumer spending last month reflected higher inflation. After adjusting for price increases in gasoline and other products, consumer spending rose by a much more sedate 0.2 percent in February.

Ian Shepherdson, chief economist at High Frequency Economics, a private consulting firm, said consumer spending likely slowed to a 3.25 percent growth rate in the January-March quarter, down from a 4.2 percent rate of increase in the final three months of last year. Consumer spending is watched closely because it accounts for two-thirds of total economic activity.

The spending report showed that an inflation barometer that excludes energy and food shot up by 0.3 percent in February, the biggest increase since a similar rise last August.

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