FOCUS U.S. consumer spending provides support for Q1 GDP, but outlook shaky

WASHINGTON (AFX) - Consumer spending should provide support for first-quarter U.S. GDP growth, but a record negative savings rate weighs on the outlook, analysts said.	    "We are seeing signs of stability ... we would expect consumption in the first quarter to be marginally up from the fourth quarter pace," said Eric Green, economist at Paribas Capital Markets.	    Consumer spending rose 0.3 pct in February from the previous month, the Commerce Department reported earlier. January's spending figure was revised up to 1.0 pct from 0.7 pct.	    January's rise was the strongest since Feb 2000, on the back of significant weakness at the end of last year, and partly in response to significant price discounting.	    Brian Jones, economist at Salomon Smith Barney, agreed the pace of consumption in the first two months of the quarter implies "faster growth in the first quarter than last quarter... with the data in hand, there is an acceleration."	    However, Green cautioned that "at this point, we would expect more weakening in March and into the second quarter."	    With expectations of weaker job growth on the back of numerous announcements of layoffs and job reductions at U.S. corporations, and smaller growth in payrolls, "consumption is going to give," Green said.	    The downside risks to consumption have helped prompt Paribas to rethink forecasts for Q1 and Q2 GDP.	    "Right now, we have Q1 as the weaker of the two. But we are gradually shifting to a view that it could be weaker in Q2," Green said.	    Ian Shepherdson, chief U.S. economist at High Frequency Economics, forecast that consumer spending will rise 3.4 pct in the first quarter, in a note to clients. 	    "This is a bit stronger than we expected, but it does not change our view that consumer spending is set to slow substantially through the spring and summer," Shepherdson said.	    Analysts pointed to the record low, negative 1.3 pct savings rate in February as a worry.	    "The important thing to look at is the savings rate," Green said, noting that in 1997-98 the savings rate was over 4 pct.	    "If confidence continues to fall, then people are going to (rebuild savings)," he added.	    Shepherdson said "most of the growth in Q1 was in January, before the collapse in confidence had time to affect spending," and forecast that March consumer spending will be up only 0.2 pct.	    "Even with steady confidence, real post-tax income growth is now slow enough ... to hold spending down," he added.	    However, Jones cautioned that it may be difficult to predict how consumers will adjust savings rates.	    The negative savings rate is "only a worry if people try to rebuild it," Jones said, noting that "we got increases in the latest two confidence reports," indicating less of a bias to rebuild savings.	    The University of Michigan final consumer sentiment index will be released later today.    

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