US Consumer Spending Goes Up With A Budding Economy

US consumers earned more and spent more during the month of February as the job market strengthened.

Purchases, which account for about 70 percent of economic activity, rose 0.7 percent in February from January which is the biggest gain in five months.

Americans spent more due to the fact that after-tax incomes rose 1.1% last month which followed January's 3.7% plunge and December's 2.6% surge. This jump occurred due to the urge to pay bonuses and dividends by December before taxes increased in 2013.

Despite the increase in social security taxes, consumers still spent more money at the beginning of the year. The jump in spending and income suggests economic growth strengthened at the start of the year after nearly stalling at the end of last year.

Economists reason that the tax increases didn't slow up economic growth because company hiring and wages have progressively increased. Employers have added an average of 200,000 jobs a month since November. That helped lower the unemployment rate in February to a four-year low of 7.7%.

Not only did consumers spend more, but they also saved more as the saving rate increased to 2.6% of after-tax income, up from 2.2% in January.

Most economists predict the economy is growing at an annual rate of roughly 2.5% in the January-March quarter, a major jump from the 0.4% growth rate in the October-December quarter.

Inflation increased 1.3% in February compared with a year ago which is far below the Federal Reserve's 2% target. This has given the central bank room to keep stimulating the economy without having to worry about price pressures.

In addition to the steady economic growth, businesses are investing more in equipment and machinery, the housing recovery appears to be strengthening and stock prices have surged.