Consumer spending rose in January after falling for a record six straight months, pushed higher by purchases of food and other nondurable items. But the increase is expected to be fleeting given all the problems facing the economy. A batch of fresh reports today showed little signs of an economic rebound, with nonresidential construction spending falling to its lowest level in more than a decade and manufacturing activity contracting for a 13th straight month.
On Wall Street, the Dow Jones industrial average plunged below 7,000 for the first time since Oct. 28, 1997, as investors grew pessimistic about the health of banks and the economy. The Dow—which lost about 220 points in afternoon trading and was heading toward 6,800—last closed below 7,000 on May 1, 1997.
The Commerce Department report on consumers showed spending rose 0.6% in January, even better than the 0.4% gain that economists expected. Personal incomes rose 0.4% in January, partly reflecting the cost-of-living adjustments provided to millions of Social Security recipients. Still, that was better than the 0.2% decline economists expected. The personal savings rate surged to 5%, the highest level since 1995 as consumers continued to sock away more of their incomes amid the deepening recession.