U.S. Spending Rose 0.3% in March; Core Prices Unchanged
By Joe Richter
April 30 (Bloomberg) -- Personal spending in the U.S. rose less than forecast in March, a sign higher gasoline prices and a sagging housing market may be starting to chip away at a mainstay of the expansion.
The 0.3 percent rise in spending followed a 0.7 percent February increase, the Commerce Department said today in Washington. The Federal Reserve's preferred measure of inflation was unchanged from a month earlier.
Adjusted for inflation, spending fell by the most since September 2005, suggesting the economy may not be able to count as much on consumers to buffer slowdowns in manufacturing and home construction. The price figures bear out the Fed's forecast that inflation will gradually recede as the economy cools.
``I would expect, especially if gas prices continue to push higher, that consumers are not going to be contributing nearly as much' to economic growth, Chris Low, chief economist at FTN Financial, said before the report.
Economists had forecast a 0.5 percent rise in spending, which accounts for two-thirds of the economy, according to the median of 58 estimates in a Bloomberg News survey. Estimates ranged from gains of 0.3 percent to 0.8 percent.
Adjusted for inflation, spending fell 0.2 percent, the first drop since August, after rising 0.3 percent the prior month, the report showed.
``The rise in gasoline prices ate up the gains in nominal spending,' said James O'Sullivan, senior economist at UBS Securities LLC in Stamford, Connecticut. ``Everything points to a much weaker consumer in the second quarter.'
Incomes
One factor helping to sustain spending is wages. Incomes in March rose a more-than-forecast 0.7 percent for a second month.
Fed policy makers are counting on consumers to keep the expansion going while housing stumbles and manufacturing cools.
``Slow' growth in manufacturing in most regions of the U.S. was balanced by ``generally positive' retail sales since the end of February, according to the Fed's regional survey, known as the Beige Book. ``Most districts reported tight labor market conditions,' the Fed said in the report last week.
The unemployment rate matched a five-year low in March and wages and salaries increased 1.1 percent in the first quarter, the most in six years, according to reports from the Labor Department.
Today's figures may help ease worries that higher wages could stoke broader inflation.
Inflation Gauge
The report's price gauge tied to spending patterns and excluding food and energy costs, the Fed's preferred measure, was unchanged in March, the first month since November without an increase. It followed a 0.3 percent February increase. The gauge rose 2.1 percent in the 12 months ended in March.
Fed policy makers have said they'd be comfortable with inflation in a 1 percent to 2 percent range. The central bank on March 21 kept the benchmark overnight lending rate at 5.25 percent for a sixth straight meeting.
The savings rate improved to minus 0.8 percent from minus 1.2 percent a month earlier. A negative rate suggests consumers are tapping savings to maintain spending.
Disposable income, or the money left over after taxes, rose 0.7 percent after increasing 0.6 percent the previous month.
Higher gasoline prices and stagnant home values will keep consumer spending from growing as much this quarter as it did in the first three months of the year, economists said.
Home Prices
A report last week showed home prices in 20 cities dropped in the year ended in February. Economists said such declines may discourage homeowners from borrowing against the value of their houses, removing a source of cash for consumers.
Prices at the gasoline pump for regular-grade gasoline rose in April to $2.88 a gallon, the highest in eight months, according to the Energy Department.
Wal-Mart, the world's largest retailer, said April 12 that this month's sales may be unchanged or decline as much as 2 percent. The Bentonville, Arkansas-based company said it may have trouble meeting its first-quarter earnings forecast because of a ``tough sales environment.'
To contact the reporter on this story: Joe Richter in Washington at jrichter1@bloomberg.net
Last Updated: April 30, 2007 08:30 EDT
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