ANOTHER BAD SIGN

Instead of using their houses as ATMs, people are starting to use their 401(k)s.

More People Tap 401(k) Accounts for Cash

By J.W. ELPHINSTONE
The Associated Press
Tuesday, February 19, 2008; 3:05 PM

As home prices fall and banks tighten lending standards, more people are doing the same thing: raiding their retirement savings just to get by and spending their nest eggs to gas up SUVs, pay mortgages or put food on the table.

Some of the nation's largest retirement plan administrators, such as Great-West Retirement Services and Fidelity Investments, are seeing double-digit spikes in hardship withdrawals and increases in loan requests, a sharp departure from levels that traditionally varied little.

Administrators say consumers are using retirement savings to pay for unmanageable mortgages, maxed-out credit cards, and costly utilities and groceries.

Despite this new trend, the wasn't more spending in real terms:

Income, spending higher than expected
Spending up mainly on price increases as inflation indicator comes in slightly above Federal Reserve's perceived target.
By David Goldman, CNNMoney.com staff writer
February 29 2008: 10:17 AM EST

NEW YORK (CNNMoney.com) -- Consumer spending rose slightly last month, as rising prices forced Americans to shell out more, according to a government report released Friday.

The Commerce Department said spending by individuals rose 0.4% in January, but that was due primarily to inflation. In constant dollars, spending held flat.