US consumer spending inches up in March

WASHINGTON – U.S. consumers boosted their spending by a tiny amount in March as purchases of nondurable goods such as clothing offset a big fall in spending on autos and other long-lasting items.

Spending edged up 0.1 per cent last month after a 0.2 per cent rise in February, the Commerce Department reported Friday. Incomes rose a solid 0.4 per cent.

Consumer spending, which accounts for 70 per cent of economic activity, has been lacklustre for the past four months. The weakness played a big role in the first quarter when the economy expanded at a weak 0.5 per cent rate, the slowest increase in two years.

But with job growth still solid, economists hope stronger spending in the months ahead will help the economy grow at faster levels.

A separate report Friday showed that employment compensation costs rose a modest 0.6 per cent in the first quarter, up only slightly from a 0.5 per cent increase in the October-December period. Wages and salaries rose 0.7 per cent. Benefit costs such as pensions and health insurance were up 0.5 per cent.

These small gains suggest that at the moment, it’s unlikely that labour costs are about to trigger higher inflation.

A consumer price gauge closely watched by the Federal Reserve inched up a slight 0.1 per cent in March. Excluding volatile food and energy, this price gauge is up 1.6 per cent over the past 12 months. Inflation has been running below the Fed’s 2 per cent target for almost four years.

At a meeting this week, the Fed decided to keep its key policy rate unchanged and gave no hint on when it might raise the rate again. Since it boosted the rate by a quarter-point in December, weakness in the U.S. and global economies have kept the central bank on the sidelines. Many economists believe the Fed will not raise rates again until the second half of this year.

The income and spending report showed that spending on durable goods fell 0.6 per cent in March, reflecting a big drop in auto sales. Spending on nondurable goods, items such as clothing and food, rose 0.6 per cent. Spending on services such as apartment rentals and utilities, rose 0.1 per cent.

The big rise in incomes and the small gain in spending resulted in a jump in the personal saving rate to 5.4 per cent of after-tax incomes, up from 5.1 per cent in February. The March level was the highest in a year and suggests that consumers have the resources to boost spending in coming months.

The overall economy, as measured by the gross domestic product, inched forward at an annual rate of just 0.5 per cent in the first quarter, the slowest showing in two years. Much of the result reflected the weakness in consumer spending.

Economists believe overall growth will rebound to around 2 per cent in the current quarter and then strengthen to around 2.5 per cent for the second half of the year.