U.S. Spending Rise Spurs Hopes of 2011 Rebound

Even with an increase of 18% in energy costs, spending rose 3.5%

Consumers streamed back to the shops in 2010, spending more on virtually everything according to official data published on Jan. 31 and offering hope the great American consumer has awoken.

Americans spent more on energy, food, clothing, housing, cars, travel, health care and a range of other products last year, pushing spending up 3.5% compared with 2009, the Commerce Department said.

Spending -- underpinned by a whopping 18% increase in energy costs -- increased across the board as unemployment levels eased and wages increased.

Despite banks' continued trepidation about lending, consumers also spent more on big-ticket items. Spending on vehicles rose 8%, helping boost profits at resurgent automakers GM and Ford.

The Commerce Department, rounding out the year's spending, wage and inflation data, said wages rose 3% and inflation rose 1.2% to the end of December.

But amid high demand for some commodities -- spurred in part by growth in China, India and Brazil -- food and beverage costs rose 3% compared with 2009.

Together food and energy costs propped up inflation, meaning that spending for the year increased a more modest 1.8%, after discounting price increases.

But positive data in the final months of the year buoyed hopes that improvements could be carried in to 2011. "This represents a very solid end to the year," said Peter Newland of Barclays Capital, pointing to further improvements to come if the jobs market continues to brighten. "A gradual rebound in labor income should underpin solid and sustained consumption growth," he said.

Stephen Stanley, chief economist for Pierpont Securities, pointed to a possible virtuous circle of wages, spending and saving. "As hiring picks up this year, income gains should accelerate noticeably, providing fuel for both modestly faster spending growth than in 2010 and a renewed rise in the savings rate."

Copyright Agence France-Presse, 2011

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