U.S. consumer spending up 0.4% in March

Martin Crutsinger
Associated Press

Washington — U.S. consumers boosted spending in March by the largest amount in four months, a hopeful sign that this key sector of the economy is reviving after a frigid winter.

Consumer spending increased 0.4 percent in March, the strongest gain since a similar increase in November, the Commerce Department reported Thursday. Spending fell in December and January before climbing a modest 0.2 percent in February.

The rise in spending came despite the fact that income growth was flat in March, the poorest showing in more than a year and a reflection of the fact that job gains slowed sharply in the month.

The latest result suggests that consumer spending, which accounts for 70 percent of economic activity, could help boost an economy that barely grew in the first quarter.

Economists had expected a better performance from spending in March, given that an earlier report showed that retail sales jumped 0.9 percent last month. Consumers, encouraged by warmer weather, pushed up sales of autos, furniture, clothing and building materials during the month.

With spending outpacing income growth in March, the saving rate declined to 5.3 percent of after-tax income, down from 5.7 percent in February.

Economists are looking for consumer spending to accelerate after a winter soft patch that reflected an unusually severe winter that kept shoppers away from the malls and auto dealerships.

The government reported Wednesday that the overall economy, as measured by the gross domestic product, slowed sharply in the first three months of the year with GDP growth of just 0.2 percent. That was down from a 2.2 percent growth rate in the fourth quarter.

A big factor in the disappointing GDP number was a slowing in consumer spending, which grew by just 1.9 percent in the first quarter. It was the weakest performance in a year and down sharply from 4.4 percent gain in the fourth quarter.

The Federal Reserve took note of the first quarter weakness in a statement issued after its two-day policy meeting on Wednesday, saying it believed many of the factors holding back growth in the first quarter were likely to be temporary.

The Fed officials kept a key interest rate at a record low near zero and said they did not plan to start raising rates until labor markets strengthened further and they gain more confidence that low inflation will move back closer to the Fed’s target of 2 percent.

The new report on spending showed that the Fed’s preferred inflation gauge rose just 0.2 percent in March and is up just 0.3 percent from a year ago. That is far from the Fed’s target of 2 percent annual gains in this inflation measurement, which is tied to consumer spending.

This measure of inflation has been running below 2 percent for nearly three years and has fallen farther from the Fed’s target in recent months. The slide reflects big declines in energy prices and a stronger dollar, which lowers the cost of imported goods. Excluding food and energy, inflation is up 1.3 percent over the past 12 months.

Many economists believe the Fed will keep rates unchanged over the next two meetings in June and July with the first rate hike not occurring until September at the earliest.