Consumer Spending Improves in March Despite Virtually No Income Growth

Consumers increased their spending in March even though they saw almost no gains in their incomes for the first time since 2013, the Commerce Department said Thursday.

Consumer spending rose 0.4 percent after an upwardly revised 0.2 percent gain in February. It was the best growth since November.

But incomes barely budged after a 0.4 percent increase the previous month. Growth was technically flat after total income increased just $6.2 billion out of $15.13 trillion.

Economists had expected a 0.5 percent rise in spending and a 0.2 percent increase in incomes.

They had forecast spending to increase because February’s levels were pushed down by unusually bad weather in the Northeast. Gas prices also have been rising, causing consumers to spend more.

Consumer spending had declined for four straight months before February’s increase.

With spending up and incomes down in March, the percentage of disposable income consumers saved fell to 5.3 percent. It had been 5.7 percent in February, the highest monthly rate since 2012.

Inflation remained extremely low. Prices rose just 0.3 percent for the 12 months ended March 30, well below the Federal Reserve’s annual 2 percent target.

The steep decline in gas prices that began last year is the main reason for the weak inflation. Excluding volatile food and energy prices, so-called core inflation was 1.3 percent for the period.

The new data came a day after the Commerce Department reported that economic growth slowed sharply in the first quarter of the year.

The economy grew at a 0.2 percent annual rate from January through March after expanding at a 2.2 percent pace in the fourth quarter.

A decline in the growth of consumer spending was a key reason, though spending picked up as the quarter progressed.

Spending increased at a 1.9 percent pace in the first quarter, a decent number but well below the 4.4 percent growth in the fourth quarter.

This article appeared in print in the May 1st, 2015 edition of Hamodia.