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

Saving Rate

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.

Less Inflation

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.

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