Consumer spending jumps in March

Personal consumption rises more than expected, even as incomes grow at slower pace.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Catherine Clifford, CNNMoney.com staff writer

Allowing more immigrant workers into the country would…
  • Boost economic growth
  • Cost Americans their jobs

NEW YORK (CNNMoney.com) -- Consumer spending jumped in March, even as income grew at a slower pace, according to a government report released Thursday.

The Commerce Department said personal spending by individuals in current dollars rose 0.4% in March, exceeding the 0.2% increase expected by economists surveyed by Briefing.com. February's gain was 0.1%.

The report showed personal income increased 0.3% in March, less than the 0.4% increase expected by economists. February's gain was 0.5%.

In inflation-adjusted dollars, personal income remained flat from the prior month.

Personal spending, in inflation-adjusted dollars, was up only 0.1%, indicating that the jump in consumer spending was primarily driven by higher costs.

Inflation picks up

A measure in the report that tracks prices consumers pay on items, excluding food and energy, rose 0.2% over the previous month. Analysts were expecting a 0.1% gain.

The so-called core PCE rose 2.1% from the same month a year.

The Federal Reserve is widely believed to prefer that this year-over-year core inflation number stay in a range of 1% to 2%.

"Inflation ticked up a little bit, but we can see from the Fed's report yesterday that the Fed is clearly not focused on the inflation rate," said Adam York, economist for Wachovia Corp.

The Fed cut the key federal funds rate Wednesday by a quarter of a percentage point to 2%. The central bank has cut rates since September in an effort to spur economic growth.

But the Fed also said Wednesday that "uncertainty about the inflation outlook remains high," leading some economists to believe the central bank may pause its rate-cutting campaign.

Savings decline

While personal income is slowing and inflation is increasing, Americans are not hesitating to spend more and save less.

Personal savings only increased 0.2% in March, down from a revised 0.4% in February. That means for every $1,000 that Americans bring in after taxes, they are only saving $2.

While incomes are not increasing as quickly as they could, "income growth is still positive," which will continue to support consumer spending,York said.

Consumer spending fuels more than two-thirds of the nation's economic activity and is closely watched as a gauge of the economy's health.

If consumers were not spending, York warned, the economy would be in a more dangerous position than it is now.

A report on first-quarter gross domestic product, a broad measure of the nation's economic activity, came in at a sluggish 0.6% annual rate increase on Wednesday.

The Conference Board's latest reading consumer confidence, also released Wednesday, dropped to the lowest level since March 2003.

York said he expects April consumer spending to weaken, but he thinks the following three months will show an uptick in consumer spending because of the government's stimulus plan.

"When you put $600 to $1,200 into an American bank account, they are most likely going to spend it," said York.  To top of page

Features
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
Tools to make your money grow You've started saving and built a financial base. Time for a few new strategies and tools to get your money to grow even more. From real estate to IRAs, here are some tips. More
Ready to start saving? Here's how to do it right When you are just starting out or finally starting to get serious about saving, the basics will get you far. Here are more than a dozen tips that will help you lay the base for building your net worth. More
Meet four kings of Alibaba's online retail empire Alibaba's shopping sites account for 80% of online retail in China. Meet four successful merchants. More

Sponsors

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.