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Consumer spending in US stalled in March for second month

Monday, May 1, 2017 - 21:25

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US consumer spending stalled in March while inflation slowed to below the Federal Reserve's target, showing the biggest part of the economy might take more time to gain momentum after a tepid start to the year.

[WASHINGTON] US consumer spending stalled in March while inflation slowed to below the Federal Reserve's target, showing the biggest part of the economy might take more time to gain momentum after a tepid start to the year.

Purchases were little changed in both March and February from their prior months, Commerce Department figures showed Monday. The median forecast of economists in a Bloomberg survey called for a 0.2 per cent advance. Incomes rose 0.2 per cent, with falling prices applying a drag on the nominal figures.

The figures were foreshadowed in Friday's report on gross domestic product that showed the slowest first quarter for household spending since 2009. Analysts are expecting the consumer to bounce back, as there's still plenty for Americans to cheer about in the economic outlook, including a steady job market.

"Spending numbers were soft in February and March, but it's not necessarily the end of the world," since the figures follow a strong fourth quarter, said Scott Brown, chief economist at Raymond James Financial Inc in St Petersburg, Florida. "If we don't see a rebound in the numbers we get for April and May, that would be concerning. But the fundamentals are still sound for the consumer." The Bloomberg survey median called for incomes to rise 0.3 per cent. Wages rose 0.1 per cent in March after a 0.5 per cent gain the prior month.

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Disposable income, or the money remaining after taxes, increased 0.5 per cent in March from the prior month after adjusting for inflation, the fastest gain since December 2015. It was up 2.4 per cent over the past year, compared with a 2.2 per cent year-over-year gain in February. The saving rate increased to 5.9 per cent from 5.7 per cent in February.

Projections for consumer spending in the Bloomberg survey ranged from a decline of 0.2 per cent to a 0.4 per cent increase. The previous month's reading was initially reported as a 0.1 per cent advance.

After adjusting for inflation, in order to generate the figures used to calculate gross domestic product, purchases increased 0.3 per cent in March after a 0.1 per cent decline in February, Monday's report also showed.

Durable-goods purchases fell 0.7 per cent after adjusting for inflation, in a month marked by a decline in auto sales, while spending on nondurable goods was up 0.3 per cent. Household outlays on services increased 0.4 per cent, following a 0.2 per cent drop in February. The services category, which also includes tourism, legal help, health care, and personal care items such as haircuts, is typically difficult for the government to estimate accurately until more information is available in later months.

The personal spending report showed the price index tied to consumer purchases fell 0.2 per cent in March from the prior month, the first decline since February 2016. It rose 1.8 per cent from the same time in 2016. That marks a slowdown after the inflation gauge, which is preferred by Federal Reserve policy makers, climbed above their 2 per cent goal in February for the first time since April 2012.

Fed officials have used bubbling inflation as one reason to gradually increase the benchmark interest rate. They did so in March, and have signaled the potential for two more quarter-point rate hikes this year. Policy makers, who meet this week, said after their last meeting in March that they're seeking a "sustained return to 2 per cent inflation." Stripping out the volatile food and energy categories, the price measure fell 0.1 per cent from February, the first drop since September 2001. It was up 1.6 per cent in the 12 months ended in March.

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