(Bloomberg News) The biggest six-month increase in U.S. worker pay in almost five years helps lay the ground for a pickup in consumer spending, the largest part of the economy.
Wages and salaries in the third and fourth quarters grew a combined $197.3 billion, the most since the six months ended March 2007, according to revised Commerce Department figures released Feb. 29. The report also showed the economy grew faster in the fourth quarter than previously estimated and Americans saved more.
Rising incomes show the improving labor market will provide households the wherewithal this year to increase their purchases, which account for about 70 percent of the economy. The wage gains may help Americans withstand higher gasoline prices that threaten discretionary spending.
"Consumers have a lot more firepower than we thought," said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. "We should see stronger consumption over the course of the year. Things are moving in the right direction."
Gross domestic product rose at a revised 3 percent annual rate in the final three months of last year, the most since the second quarter of 2010, the Commerce Department reported. Consumer spending grew at a 2.1 percent annual pace, adding 1.5 percentage points to economic growth, the most in a year.
Federal Reserve Chairman Ben S. Bernanke said keeping monetary stimulus is warranted even with employment gains and a jobless rate that's declined to a three-year low of 8.3 percent.
"We have seen some positive developments in the labor market," Bernanke said this week during his semi-annual monetary policy report to Congress. He said a recent rise in gasoline prices "is likely to push up inflation temporarily while reducing consumers' purchasing power."
A gallon of regular unleaded gasoline has climbed 14 percent this year to $3.74 as of March 1, the highest level since June, according to AAA, the nation's largest automobile association. At the same time, January data indicate Americans are in better shape to withstand the run-up.
Wages grew 0.4 percent in January for a second month, figures showed yesterday. Personal spending adjusted for price changes was unchanged for a third month, restrained by outlays for services like utilities that may have been tied to warm winter weather. Purchases of durable goods, like vehicles, rose the most in three months.
'Consumer Can Cope'