Consumer spending rises despite gas prices

Increase comes despite gas prices
Shoppers loaded the conveyer belt at the checkout counter Thursday at Costco in Mountain View, Calif. Americans' incomes rose in March, which spurred higher spending.

WASHINGTON --- The first quarter ended on an up note with U.S. consumer spending looking better than expected, given higher gasoline costs, the Commerce Department reported Friday.


March data showed consumer spending rose 0.6 percent in current dollar terms, roughly in line with expectations on Wall Street.

"At least through March, households continued to spend, but rising prices (are) eating up a lot of that money," said Joel Naroff, the president of Naroff Economic Advisors Inc.

The report on personal incomes as well as consumer spending fleshes out monthly details contained in the government's data on growth in gross domestic product for the three months through March, released Thursday. In its initial forecast, the Commerce Department said economic growth slowed to a 1.8 percent annual pace in the first quarter from a 3.1 percent pace in the final three months of 2010.

A sharp drop in government spending was the main culprit for the first-quarter GDP slowdown, but consumer spending -- which accounts for about 70 percent of the economy -- also decelerated.

Consumer spending slowed to a 2.7 percent pace in the first quarter from a 4 percent pace in the fourth quarter. But economists had been expecting a steeper fall-off, to a 2 percent increase.

Besides the March data, the Commerce Department revised higher consumer spending for January and February.

As revised, spending rose by 0.9 percent in February, compared with the prior estimate of a 0.7 percent increase, and by 0.5 percent in January, compared with 0.3 percent previously estimated.

Personal income rose 0.5 percent in March, above expectations of a 0.3 percent gain.

The "personal consumption expenditure" index, which Federal Reserve officials say is a more accurate gauge of inflation than the better-known consumer price index, rose 0.4 percent on the month. The core rate of inflation -- which excludes food and energy prices -- rose 0.1 percent, as expected.

In the past year, the PCE price index has risen 1.8 percent, while the core PCE index was up 0.9 percent. Fed officials have adopted an informal target for inflation of 1.7 percent to 2 percent.

After adjusting for inflation of 0.4 percent, after-tax incomes rose 0.1 percent in March and real spending increased 0.2 percent.

This inflation-adjusted rate of spending was clear evidence of what Fed Chairman Ben Bernanke has described as a "double whammy" from higher gasoline prices: On the one hand, higher prices at the pump add to inflation; on the other, they drain purchasing power from households.

But at his first-ever news conference following a meeting of the policy-setting Federal Open Market Committee, Bernanke said the U.S. central bank doesn't expect the higher inflation seen in recent data to last for a long time.


Tue, 08/15/2017 - 23:51

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