Consumer spending climbs more than forecast on U.S. services

Consumer spending in the U.S. rose more than projected in March, reflecting a jump in outlays for services that is unlikely to be repeated as the biggest part of the economy softens this quarter.

Household purchases, which account for about 70% of the economy, climbed 0.2% after a 0.7% gain the prior month, a Commerce Department report showed today in Washington. The median estimate in a Bloomberg survey of 74 economists called for spending to be little changed. Incomes increased less than forecast and inflation cooled to the lowest level in more than three years.

Cooler-than-normal temperatures last month may have temporarily boosted spending on utilities, just as the increase in the payroll tax that took effect in January is starting to inflict more damage. A slower pace of growth and less inflation means Federal Reserve policy makers will probably confirm they’ll keep pumping money into financial markets after they meet this week.

“It’s a relatively decent showing for spending, but consumers won’t be able to sustain the current pace if income growth continues to disappoint,” said Millan Mulraine, an economist for TD Securities USA LLC in New York, who accurately projected the gain in spending. “The weak inflation backdrop is likely to cause the Fed to at least keep purchasing” securities.

Home Sales

More Americans than forecast signed contracts to buy previously owned homes in March, another indication of progress in the housing market, other data today showed.

The index of pending home sales increased 1.5% after a revised 1% decline the prior month that was larger than initially reported, according to figures from the National Association of Realtors. The median estimate in a Bloomberg survey projected a 1% increase

Stocks climbed, with the Standard & Poor’s 500 Index heading for its sixth straight month of gains, as pending sales of homes climbed and amid optimism central banks will maintain stimulus plans. The S&P 500 rose 0.6% to 1,591.03 at 10:44 a.m. in New York.

Projections for spending in the Bloomberg survey ranged from a 0.2% drop to gains of 0.4%.

Incomes increased 0.2% in March after climbing 1.1% the prior month. The Bloomberg survey median called for incomes to rise 0.4%.

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