U.S. consumer spending posts solid rise in March

May 1, 2002
U.S. consumer spending and personal income posted solid gains in March, with both notching their fourth consecutive monthly rise, the government said
U.S. consumer spending and personal income posted solid gains in March, with both notching their fourth consecutive monthly rise, the government said in a report that showed shoppers doing their part to help the economy recover. Consumer spending rose 0.4 percent last month to an annualized rate of $7.29 trillion after a 0.6 percent gain in February, the Commerce Department said. Personal income also grew 0.4 percent in March to an $8.92-trillion pace following a 0.6 percent increase a month earlier.The moderate rise in March consumer spending, which accounts for two-thirds of U.S. economic activity, was good news for an economy in the early stages of emerging from a recession that set in a little more than a year ago."It suggests momentum in consumer spending was holding up pretty well at the end of the (first) quarter," said Conrad DeQuadros, an economist with Bear Stearns in New York.On Friday, Commerce said U.S. gross domestic product raced ahead at a faster-than-expected 5.8 percent annual clip in the first three months of the year, with consumer spending growing at a healthy 3.5 percent pace.However, economists say that because consumers did not ratchet back sharply on their spending during the recession as they often do during downturns, they are unlikely to give the economy much of a boost as it recovers.In addition, some warn that temporary factors which have lent strength to consumer spending recently, such as tax rebates, may combine with higher energy costs to dampen consumer outlays in coming months.The gains in both spending and income matched the expectations of economists and financial markets took little notice of the numbers, focusing on other matters.Stocks fell on weak earnings and corporate debt worries with the Dow Jones industrial index dropping 90.85 points to 9,819.87 and the Nasdaq composite closing off 6.96 points to 1,656.93. U.S. Treasury prices also fell.Monday's report showed inflation well-contained, key to the thinking of Federal Reserve officials trying to gauge when to start raising interest rates after 11 reductions last year that brought the benchmark rate to a 40-year low of 1.75 percent.The PCE price index rose a modest 0.2 percent after a 0.1 percent increase in February. The so-called core rate, which strips out volatile food and energy prices, rose 0.1 percent for the third month in a row."This may allow the Fed to wait a little longer before it feels its needs to begin tightening monetary policy," Fannie Mae Chief Economist David Berson said, noting the core rate was up only 1.1 percent over the 12 months ending in March."The Fed would prefer to see final demand pick up a little bit more before it has to start tightening," he said. Much of the first quarter's GDP growth was due to a slower pace of inventory reduction by businesses rather than a rise in consumer and business demand.In March, taxes took about the same bite out of consumer income as a month earlier and consumers' disposable income rose 0.5 percent, a good sign for the future.With that gain outstripping the rise in spending, the saving rate rose to 2.2 percent in March from 2.1 percent in February. A rising saving rate could help alleviate the concern of many economists that relatively high debt levels may lead consumers to cut back spending in the months ahead.