WASHINGTON, April 29 — US consumer spending increased by the most in more than 9-1/2 years in March, but price pressures remained muted, with a key inflation measure posting its smallest annual gain in 14 months.
The surge in consumer spending reported by the Commerce Department today sets a stronger base for growth in consumption heading into the second quarter after it slowed sharply in the first three months of the year. Tame inflation, however, supports the Federal Reserve’s recent decision to suspend further interest rate increases this year.
Fed officials are scheduled to meet tomorrow and Wednesday to assess the economy and deliberate on the future course of monetary policy. The US central bank in March dropped forecasts for any interest rate increases this year, halting a three-year policy tightening campaign. The Fed raised borrowing costs four times in 2018.
Consumer spending, which accounts for more than two-thirds of US economic activity, surged 0.9 per cent as households stepped up purchases of motor vehicles and spent more on healthcare. Consumer spending edged up 0.1 per cent in February. Data for January was revised up to show consumer spending rising 0.3 per cent instead of the previously reported 0.1 per cent gain.
The release of the February spending data was delayed by a five-week partial shutdown of the federal government that ended on January 25. Economists polled by Reuters had forecast consumer spending jumping 0.7 per cent in March.
When adjusted for inflation, consumer spending increased 0.7 per cent in March. This so-called real consumer spending was unchanged in February. The data was included in last Friday’s first-quarter gross domestic product report.
March’s surge in real consumer spending suggested an acceleration in consumption was likely in the second quarter. Consumers spending increased at a 1.2 per cent annualised rate in the first quarter, the slowest in a year. The overall economy grew at a 3.2 per cent rate last quarter.
US Treasury yields were little changed after the consumer spending and inflation data. The dollar held steady against a basket of currencies. US stock index futures were trading slightly lower.
Tame inflation
In March, spending on goods rebounded 1.7 per cent, with outlays on long-lasting manufactured goods such as cars shooting up 2.3 per cent. Spending on goods fell 0.5 per cent in February. Outlays on services increased 0.5 per cent last month, driven by healthcare spending, after rising 0.4 per cent in February.
Inflation was benign, with the personal consumption expenditures (PCE) price index excluding the volatile food and energy components unchanged in March after edging up 0.1 per cent in February. That lowered the year-on-year increase in the so-called core PCE price index to 1.6 per cent, the smallest increase since January 2018, from 1.7 per cent in February.
The core PCE index is the Fed’s preferred inflation measure. It hit the central bank’s two per cent inflation target in March last year for the first time since April 2012.
In March, personal income ticked up 0.1 per cent after rising 0.2 per cent in February. Wages rose 0.4 per cent in March after advancing 0.3 per cent in the prior month.
Savings fell to US$1.03 trillion (RM4.26 trillion) in March from US$1.16 trillion in February. The saving rate dipped to 6.5 per cent last month from 7.3 per cent in February. — Reuters
