US consumer spending up, income posts largest drop in 20 years

WASHINGTON (REUTERS) - US consumer spending rose in January as Americans spent more on services, with savings providing a cushion after income recorded its biggest drop in 20 years.

The Commerce Department said on Friday consumer spending increased 0.2 per cent in January after a revised 0.1 per cent rise the prior month. Spending had previously been estimated to have increased 0.2 per cent in December.

January's increase was in line with economists'expectations. Spending accounts for about 70 per cent of US economic activity and when adjusted for inflation, it gained 0.1 per cent after a similar increase in December.

Though spending rose in January, it was supported by a rise in services, probably related to utilities consumption. Spending on goods fell, suggesting some hit from the expiration at the end of 2012 of a 2 per cent payroll tax cut. Tax rates for wealthy Americans also increased.