Consumer spending slows in January

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Consumer spending in the U.S. increased by 0.2 percent in January, less than a revised 0.5 percent in December, the Commerce Department reported today, and the savings rate rose in January to 5.8 percent from 5.4 percent the month before, a sign of caution among consumers.

The slowdown in spending growth came even though personal income rose by 1 percent, the largest gain since May 2009 as the federal government extended income tax cuts to fatten Americans' paychecks and stimulate spending, according to reports.

Economists surveyed by Dow Jones Newswires had estimated that spending and incomes would climb by 0.4 percent in January.

Consumer spending accounts for 70 percent of demand in the U.S. economy. During the fourth quarter, Americans spent at the highest rate in four years as low prices and a little improvement in the struggling job market lured holiday shoppers.

However, the slowdown in spending growth during January is a negative sign, reflecting challenges to a recovering economy.

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