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.
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%.
The saving rate held at 2.7%. The rate averaged 2.6% in the first quarter, the lowest since the last three months 2007.
Wages and salaries rose 0.2% after climbing 0.7% in February. Disposable income, or the money left over after taxes, rose 0.3% after adjusting for inflation. It climbed 0.7% in the prior month.
Adjusting consumer spending for inflation, which renders the figures used to calculate gross domestic product, purchases rose 0.3% for a second month, today’s report showed.
Price-adjusted spending on services jumped 0.6%, the most since October 2001. The increase probably reflects outlays on utilities, reflecting colder-than-normal temperatures. The average temperature last month was 40.8 degrees Fahrenheit (4.9 degrees Celsius), making it the coolest March since 2002, according to the National Climatic Data Center.
An index of inflation tied to spending patterns increased 1% from a year earlier, the smallest gain since October 2009.
The economy grew at a 2.5% annualized rate in the first quarter, less than the median forecast of economists surveyed by Bloomberg, limited by a drop in defense outlays, figures showed yesterday. Consumer spending gained 3.2%, the most since the fourth quarter of 2010.
The lagged effect from a two percentage-point jump in the payroll tax at the start of 2013, and $85 billion in automatic budget cuts that began March 1, mean economic growth will weaken to a 1.5% pace this quarter, according to a Bloomberg survey taken April 5 to April 9. The economy will then reaccelerate to an average 2.4% rate in the last six months of the year, economists in the survey predicted.
Fed policy makers have said they will maintain stimulus until the labor market improves “significantly.” The economy’s inability to sustain faster growth means central bankers will probably affirm a pledge to keep buying bonds when they meet this week.
Purchases of big-ticket items like automobiles may keep growing as households replace older vehicles and take advantage of low borrowing costs. Cars sold at an average 15.3 million annualized rate in the first quarter, the most since the same period in 2008, Ward’s Automotive Group data showed.
Hiring is projected to pick up after employers added 88,000 jobs in March, the fewest in nine months. Payrolls grew by 150,000 in April, according to the median forecast in a Bloomberg survey. The unemployment rate held at a four-year low of 7.6%, it showed.
Rising stock prices and a recovering housing market are also boosting wealth. The Standard & Poor’s 500 Index has advanced 10.9% this year through April 26. Home values rose 7.1% in the year ended February, the biggest 12- month gain since May 2006, according to the Federal Housing Finance Agency.
Some retailers are seeing little progress in sales. At Safeway Inc., the second-largest U.S. supermarket chain, customers remain price-conscious, in part because confidence is yet to rebound to pre-recession levels, Chairman and Chief Executive Officer Steve Burd said.
Shoppers are “trying to be very careful with how they spend their dollars,” Burd said on an April 25 earnings call.
Still, Americans’ moods are improving. The Bloomberg Consumer Comfort Index held close to a five-year high in the week ended April 21 from the prior period.