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US consumer spending posts biggest gain since 2009

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US consumer spending increased by the most in more than 9-1/2 years in March, but price pressures remained muted, with a key inflation measure posting its smallest annual gain in 14 months.

[WASHINGTON] US consumer spending increased by the most in more than 9-1/2 years in March, but price pressures remained muted, with a key inflation measure posting its smallest annual gain in 14 months.

The Commerce Department said on Monday consumer spending, which accounts for more than two-thirds of US economic activity, surged 0.9 per cent as households stepped up purchases of motor vehicles and spent more on healthcare.

Consumer spending edged up 0.1 per cent in February. Data for January was revised up to show consumer spending rising 0.3 per cent instead of the previously reported 0.1 per cent gain.

The release of the February spending data was delayed by a five-week partial shutdown of the federal government that ended on Jan 25. Economists polled by Reuters had forecast consumer spending jumping 0.7 per cent in March.

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When adjusted for inflation, consumer spending increased 0.7 per cent in March. This so-called real consumer spending was unchanged in February.

The data was included in last Friday's first-quarter gross domestic product report. March's surge in real consumer spending suggested an acceleration in consumption was likely in the second quarter. Consumers spending increased at a 1.2 per cent annualized rate in the first quarter, the slowest in a year.

The overall economy grew at a 3.2 per cent rate last quarter.

In March, spending on goods rebounded 1.7 per cent, with outlays on long-lasting manufactured goods such as cars shooting up 2.3 per cent. Outlays on services increased 0.5 per cent last month, driven by healthcare spending.

Inflation pressures were benign in March. The personal consumption expenditures (PCE) price index excluding the volatile food and energy components was unchanged after edging up 0.1 per cent in February.

That lowered the year-on-year increase in the so-called core PCE price index to 1.6 per cent, the smallest increase since January 2018, from 1.7 per cent in February.

The core PCE index is the Federal Reserve's preferred inflation measure. It hit the US central bank's 2 per cent inflation target in March last year for the first time since April 2012. Fed officials are scheduled to meet on Tuesday and Wednesday to assess the economy and deliberate on the future course of monetary policy.

The Fed in March dropped forecasts for any interest rate increases this year, halting a three-year policy tightening campaign. The Fed raised borrowing costs four times in 2018.

In March, personal income ticked up 0.1 per cent after rising 0.2 per cent in February. Wages rose 0.4 per cent in March after advancing 0.3 per cent in the prior month. Savings fell to US$1.03 trillion in March from US$1.16 trillion in February.

REUTERS