The Joplin Globe, Joplin, MO

Business

April 30, 2012

US consumer spending slowed in March, income rose

WASHINGTON — Americans increased their spending more slowly in March, suggesting some are worried that their paychecks aren’t growing fast enough.

The Commerce Department said Monday that consumer spending increased just 0.3 percent last month after a 0.9 percent gain in February.

Income grew 0.4 percent following a 0.3 percent gain in February. But after-tax income when adjusted for inflation increased just 0.2 percent in March. The gain followed two months of declines.

Consumer spending, which accounts for 70 percent of economic growth, rose 2.9 percent in the January-March quarter — the fastest pace in more than a year. The increase was a bright spot in an otherwise weak first quarter for economic growth.

But Paul Dales, senior U.S. economist at Capital Economics, noted that stronger spending in January and February drove the quarterly increase. And consumers spent more while saving less, which suggests they cannot sustain their spending pace without better pay.

“Real incomes will need to grow at a faster rate to prevent consumption growth from slowing,” said Dales. He noted that Friday’s report on April hiring is a crucial sign of where the economy is headed.

The government reported Friday that the overall economy grew at an annual rate of 2.2 percent in the January-March quarter. That’s down from 3 percent annual growth in the October-December period. The weakness mainly reflected government budget-cutting and weaker business investment.

In March, consumers spent 0.9 percent more on non-durable goods, such as clothing. Spending on durable goods, such as cars and appliances, fell 0.3 percent. Spending on services such as utilities and rent was mostly flat.

An inflation gauge tied to consumer spending rose a modest 0.2 percent in March. Over the past 12 months, the index is up 2.1 percent, just above the Federal Reserve’s 2 percent inflation target

Some economists worry consumers can’t keep spending as freely as they did in the first three months of this year without bigger pay raises. After-tax income rose just 0.6 percent in the first three months compared with a year earlier. That was the smallest pay increase in two years.

The savings rate edged up to 3.8 percent in March, after dropping to a 30-month low of 3.7 percent of after-tax income in February.

A healthy job market could reinvigorate consumers. But the economy created just 120,000 jobs — half the pace of the previous three months.

Economists predict employers added 173,000 jobs this month, slightly better than March’s figures but below the pace from December through February.

One positive change since the winter: gas prices appear to have peaked. That would give consumers more to spend elsewhere.

The nationwide average for a gallon of regular gasoline stood at $3.83 on Friday, down eight cents from a month ago, according to AAA’s fuel gauge report.

 

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