U.S Consumer Spending Stalls in March

U.S. consumer spending stalled in March while inflation slowed to below the Federal Reserve’s target, showing the biggest part of the economy might take more time to gain momentum after a tepid start to the year.

Purchases were little changed in both March and February from their prior months, Commerce Department figures showed Monday. The median forecast of economists in a Bloomberg survey called for a 0.2 percent advance. Incomes rose 0.2 percent, with falling prices applying a drag on the nominal figures.

The figures were foreshadowed in Friday’s report on gross domestic product that showed the slowest first quarter for household spending since 2009. Analysts are expecting spending to bounce back, as there’s still plenty for Americans to cheer about in the economic outlook, including a steady job market.

“Consumers still have a lot going for them: a tightening labor market with rising income growth, solid consumer confidence readings, a strong assist from rising stock and home prices, and mortgage rates that have fallen back since the March highs,” Scott Anderson, chief economist at Bank of the West in San Francisco, said in a research note before the report.

The Bloomberg survey median called for incomes to rise 0.3 percent. Wages rose 0.1 percent in March after a 0.5 percent gain the prior month.

Disposable Income

Disposable income, or the money remaining after taxes, increased 0.5 percent in March from the prior month after adjusting for inflation. It was up 2.4 percent over the past year, compared with a 2.2 percent year-over-year gain in February. The saving rate increased to 5.9 percent from 5.7 percent in February.

Projections for consumer spending in the Bloomberg survey ranged from a decline of 0.2 percent to a 0.4 percent increase. The previous month’s reading was initially reported as a 0.1 percent advance.

After adjusting for inflation, in order to generate the figures used to calculate gross domestic product, purchases increased 0.3 percent in March after a 0.1 percent decline in February, Monday’s report also showed.

Household outlays on services increased 0.4 percent after adjusting for inflation, following a 0.2 percent drop in February. The services category, which also includes tourism, legal help, health care, and personal care items such as haircuts, is typically difficult for the government to estimate accurately until more information is available in later months.

Inflation Gauge

The personal spending report showed the price index tied to consumer purchases fell 0.2 percent in March from the prior month, the first decline since February 2016. It rose 1.8 percent from the same time in 2016. That marks a slowdown after the inflation gauge, which is preferred by Federal Reserve policy makers, climbed above their 2 percent goal in February for the first time since April 2012.

Fed officials have used bubbling inflation as one reason to gradually increase the benchmark interest rate. They did so in March, and have signaled the potential for two more quarter-point rate hikes this year. Policy makers, who meet this week, said after their last meeting in March that they’re seeking a “sustained return to 2 percent inflation.”

Stripping out the volatile food and energy categories, the price measure fell 0.1 percent from February, the drop since September 2001. It was up 1.6 percent in the 12 months ended in March.

Bloomberg

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell