February consumer spending rises a scant 0.1%, pointing to recession

Real consumer spending increased a scant 0.1% in February 2008, the U.S. Commerce Department announced Friday, inline with expectations. It was the third straight month of sub-par consumer demand, suggesting that a major component of U.S. economic growth is faltering, which typically leads to a recession.

Meanwhile, inflation eased in January 2008, with consumer prices increasing 0.1%. Core prices, which exclude food and energy, also increased just 0.1%. For the past 12 months, consumer prices have increased 3.4%, while the core rate has increased 2%, or below the U.S. Federal Reserve's inflation ceiling, i.e. within the Fed's 'comfort zone.'

In addition, personal income increased 0.5% in February 2008, with wages and salaries increasing 0.3%, asset income rising 0.2%, while rental income plunging 5.3%. This increase in income was above expectations of 0.3%.

Economic Analysis: One negative and one positive data point for the U.S. economy in the report. The essentially flat 0.1% increase in consumer spending for the third straight month is indicative of a slowdown in consumer demand, which suggests, at minimum, continued economic sluggishness ahead. A bright point: core inflation, running at 2.0%, remains below what the U.S. Federal Reserve considers to be excessive. If the core rate doesn't increase, that should provide additional leeway for the Fed to further lower short-term interest rates, should it choose to do so.