Consumer spending in the United States rose in January even though incomes dropped by 3.6 percent, the most in 20 years, showing that households were weathering the payroll tax increase by socking away less money in the bank, Bloomberg reported.

 

Household purchases, which account for about 70 percent of the economy, climbed 0.2 percent after a 0.1 percent gain the prior month, according to a Commerce Department report released this morning. 

 

The median estimate in a Bloomberg survey of 76 economists called for a 0.2 percent advance. Incomes slumped 3.6 percent, sending the saving rate down to the lowest level since November 2007.

 

The saving rate dropped to 2.4 percent from 6.4 percent. Disposable income, or the money left over after taxes, dropped 4 percent after adjusting for inflation, the biggest plunge since monthly records began in 1959.

 

Employment gains, a rebound in housing and growing demand for autos will probably keep supporting consumer spending, economists predict. Even so, rising gasoline prices and the need to rebuild nest eggs may make it difficult for households to match last quarter's performance.

 

"It's going to be touch and go for the consumer for the next few months," said Ryan Sweet, a senior economist at Moody's Analytics Inc. in West Chester, Pa., who correctly projected the 3.6 percent drop in income. "The consumer is going to be able to support the recovery, but they're not going to be able to take it" to a higher level, he said.