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Associated Press
A shopper looks at clothing on sale at Footloose in Mount Lebanon, Pa. Consumer spending climbed in February by the most in five months as incomes rose, according to the Commerce Department. Consumer spending accounts for 70 percent of U.S. economic activity.

Consumer spending hits 5-month high

– Consumer spending climbed in February by the most in five months as incomes rose, signaling that an improving job market is spurring demand.

Household purchases, which account for about 70 percent of the economy, gained 0.7 percent after a 0.4 percent advance the prior month that was bigger than previously estimated, a Commerce Department report showed Friday in Washington.

The median estimate in a Bloomberg survey of 78 economists called for a 0.6 percent rise. Incomes increased 1.1 percent, more than projected, sending the saving rate up from a five-year low.

Labor market progress and an increase in household wealth linked to rising home values and stocks are helping Americans cushion the fallout of higher payroll taxes and costlier fuel. Strength in purchases is one reason economists project the economy picked up this quarter after slowing to a 0.4 percent annual rate in the final three months of 2012.

“The economy is in a very good place right now ahead of the fiscal restraint,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “This recovery is sustainable. Consumers are in the driver’s seat.”

Stock markets in the U.S. were closed today for the Good Friday holiday.

Projections for spending ranged from gains of 0.3 percent to 0.9 percent. The January reading was previously reported as an increase of 0.2 percent.

The Bloomberg survey median called for incomes to rise 0.8 percent. The gain in February followed a 3.7 percent drop the prior month that reflected, in part, the 2 percentage-point increase in the payroll tax.

The saving rate increased to 2.6 percent from 2.2 percent in January, the lowest since August 2007. Wages and salaries climbed 0.6 percent after falling 0.6 percent. Figures for both months were reduced by $15 billion at an annual rate reflecting the impact of the accelerated bonuses paid out last year before tax rates climbed.

Disposable income, or the money left over after taxes, rose 0.7 percent after adjusting for inflation. It dropped 4 percent in the prior month.

Williams-Sonoma Inc. is among retailers enjoying a pickup in sales. Same-store purchases at the San Francisco company’s West Elm home-goods chain increased 19 percent in the fiscal fourth quarter, while sales at Pottery Barn Kids advanced 7.7 percent.

Some merchants are forecasting the pace of sales will be sustained. Macy’s Inc., the second-largest U.S. department-store chain, projects sales at stores open at least a year will rise 3.5 percent this year, after growing 3.7 percent in 2012.

“From a macro perspective, we think the customer is OK, not particularly strong, not particularly weak,” Karen Hoguet, chief financial officer at Macy’s, said at a March 14 conference. “We look at the momentum we have coming in to the year, and we feel quite confident.”