Consumer Spending Rises By Slowest Amount In 5 Months

Monday, April 30th 2007, 8:30 am
By: News On 6

WASHINGTON (AP) _ Consumer spending rose at the slowest rate in five months in March, even though personal incomes posted a solid gain.

The Commerce Department reported that consumer spending on all items was up 0.3 percent last month, the slowest increase since a similar rise in October. Incomes rose by 0.7 percent, the fourth straight solid month of income growth.

The spending performance was even weaker when the effects of higher gasoline prices were removed. After adjusting for price increases, consumer spending actually fell by 0.2 percent in March, the poorest showing since the fall of 2005 when the economy was suffering the aftershocks of Hurricane Katrina.

The weaker-than-expected performance in consumer spending was certain to add to worries that the economy could be in danger of stalling out if consumer confidence falters in the face or rising gasoline prices and a slumping housing market.

The government reported last Friday that the overall economy, as measured by the gross domestic product, slowed to an anemic pace of just 1.3 percent in the January-to-March quarter, the slowest performance in four years.

The report Monday showed that a price gauge tied to consumer spending was unchanged in March, after excluding the effects of gasoline and food.

This meant that core inflation as measured by personal consumption spending is up by just 2.1 percent for the past 12 months, much better than the worrisome 2.4 percent jump recorded for the 12 months ending in February.

The slowdown in inflation outside of energy should provide some assurance to the Federal Reserve, which is hoping that its 17 consecutive interest rate increases will be enough to slow economic growth slightly and keep inflation under control.

The Fed last raised interest rates in June 2006 and since that time has kept rates steady in hopes that it has done enough to trigger a retreat in inflation pressures. The Fed meets again next week, and the widespread view is that it will leave rates unchanged once again.

The 0.7 percent rise in incomes matched the February gain and followed a sizable 1.1 percent jump in January which reflected the one-time impact of huge bonus payments paid to high-income executives.

After-tax incomes were also up 0.7 percent although this gain shrank to just 0.2 percent when the effects of inflation were removed.

The personal savings rate remained in negative territory for the 24th consecutive month. The rate was a minus 0.8 percent in March, slightly better than the negative 1.2 percent recorded in February.

A negative savings rate means that consumers not only used all of their incomes for purchases but also dipped into past savings or increased their borrowing to finance purchases during the month.