March Consumer Spending Rises Less Than Expected, Personal Incomes Flat

The Commerce Department Thursday said U.S. consumer spending rose by 0.4 percent in March, but personal incomes remained flat. The increase fueled by purchases of durable goods, and up from 0.2 percent in February. While households increased purchases of automobiles, spending on utilities decreased.

Economists polled by Reuters had forecast consumer spending, which accounts for more than two-thirds of U.S. economic activity, gaining 0.5 percent last month.

When adjusted for inflation, consumer spending rose by just 0.3 percent in March after being flat the prior month. However, the gain was included in Wednesday’s abysmal first-quarter gross domestic product report, which showed the economy grinding to a near complete halt. GDP grew at only a 0.2 percent annual pace after a mediocre 2.2 percent growth rate in the fourth quarter.

The Federal Reserve on Wednesday acknowledged the first quarter stall, but publicly tried to dismiss the report as an anomaly. Yet, actions speak louder than words, and the timing and trajectory of interest rate hikes are expected to be postponed to a later date.

Meanwhile, despite the gains in spending, Americans’ personal incomes remained flat. Because savings slipped, it is clear they were tapped to account for the increase in spending. The savings rate remained at high levels, which economists hope will fuel future consumer spending.

Excluding food and energy, prices rose 0.1 percent for a third straight month. The so-called core PCE price index increased 1.3 percent in the 12 months through March.