Economic data show recovery still bumpy

Steady declines in applications for unemployment aid are pointing to another strong month of hiring in February.

A healthy job market normally drives faster growth. But Americans' after-tax income, adjusted for inflation, actually fell in January, which led to a fourth straight month of weak consumer spending.

The mixed data highlighted a flurry of reports Thursday that suggest the recovery will stay bumpy. Manufacturing growth slowed and construction spending dipped, while auto and retail sales both climbed.

Consumers are also being hit with higher gas prices that are only expected to rise further in the coming months.

Jennifer Lee, an economist at BMO Capital Markets, put it bluntly: "Stronger job creation is not generating more spending."

Weekly applications for unemployment benefits dipped last week to a seasonally adjusted 351,000, the Labor Department said. And the four-week average of applications, which smooths out weekly fluctuations in the data, fell to 354,000. Both are the lowest levels in four years.

Applications for unemployment aid have fallen steadily since the early fall and are down nearly 15 percent since October. When applications drop consistently below 375,000, it usually signals that hiring is strong enough to lower the unemployment rate.

Many economists predict employers added more than 200,000 net jobs in February for the third straight month.

Consumer spending increased 0.2 percent in January, the Commerce Department said. That's better than December's reading of no change. And income rose 0.3 percent, the second straight monthly increase.

Still, after paying taxes and adjusting for inflation, incomes actually dipped in January.

At the same time, inflation-adjusted spending was flat for the third straight month. That was partly because of warmer weather, which allowed people to spend less to heat their homes.

Strong hiring in December and January, rather than pay raises, helped boost income. That trend may fuel more consumer spending and support solid growth for the economy in coming months. Consumer spending accounts for 70 percent of economic activity.