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Apr 29, 10:34 AM EDT

US consumer spending inches up in March


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AP Photo/Alan Diaz

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WASHINGTON (AP) -- U.S. consumers boosted their spending by a tiny amount in March as purchases of nondurable goods such as clothing offset a big fall in spending on autos and other long-lasting items.

Spending edged up 0.1 percent last month after a 0.2 percent rise in February, the Commerce Department reported Friday. Incomes rose a solid 0.4 percent.

Consumer spending, which accounts for 70 percent of economic activity, has been lackluster for the past four months. The weakness played a big role in the first quarter when the economy expanded at a weak 0.5 percent rate, the slowest increase in two years.

But with job growth still solid, economists hope stronger spending in the months ahead will help the economy grow at faster levels. But some analysts expressed concern that the weak March result means there is little momentum going in to the second quarter.

A separate report Friday showed that employment compensation costs rose a modest 0.6 percent in the first quarter, up only slightly from a 0.5 percent increase in the October-December period. Wages and salaries rose 0.7 percent. Benefit costs such as pensions and health insurance were up 0.5 percent.

These small gains suggest that at the moment, it's unlikely that labor costs are about to trigger higher inflation.

A consumer price gauge closely watched by the Federal Reserve inched up a slight 0.1 percent in March. Excluding volatile food and energy, this price gauge is up 1.6 percent over the past 12 months. Inflation has been running below the Fed's 2 percent target for almost four years.

At a meeting this week, the Fed decided to keep its key policy rate unchanged and gave no hint on when it might raise the rate again. Since it boosted the rate by a quarter-point in December, weakness in the U.S. and global economies have kept the central bank on the sidelines. Many economists believe the Fed will not raise rates again until the second half of this year.

Sal Guatieri, senior economist at BMO Capital Markets, said he expects consumer spending to moderately accelerate in the second quarter. But weak data in areas such as factory orders and business investment had led him to trim his forecast for overall growth.

He now expects milder growth of 2.3 percent growth this quarter.

The Fed, Guartieri said, will "need to see a string of much better numbers than this before pulling the rate trigger a second time."

The income and spending report showed that spending on durable goods fell 0.6 percent in March, reflecting a big drop in auto sales. Spending on nondurable goods, items such as clothing and food, rose 0.6 percent. Spending on services such as apartment rentals and utilities, rose 0.1 percent.

The big rise in incomes and the small gain in spending resulted in a jump in the personal saving rate to 5.4 percent of after-tax incomes, up from 5.1 percent in February. The March level was the highest in a year and suggests that consumers have the resources to boost spending in coming months.

The overall economy, as measured by the gross domestic product, inched forward at an annual rate of just 0.5 percent in the first quarter, the slowest showing in two years. Much of the result reflected the weakness in consumer spending.

Economists believe overall growth will rebound to around 2 percent in the current quarter and then strengthen to around 2.5 percent for the second half of the year.

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