Consumer Spending Up 0.3%, Stronger Than Expected

WASHINGTON – Consumers spent modestly in March but cut back sharply on purchases of big-ticket items such as cars. Incomes rose more quickly than spending.

The Commerce Department reported Monday that Americans' spending grew by 0.3 percent last month, slightly stronger than the 0.2 percent rise many analysts were predicting.

Incomes, which include wages, interest and government benefits, went up even more quickly, rising 0.5 percent last month, matching many analysts' expectations.

The spending and income figures aren't adjusted for inflation.

One reason consumer spending hasn't collapsed in the face of a highly volatile stock market and higher energy prices is that most Americans still have jobs, even with the economic slowdown.

Consumer confidence made a comeback in March after five straight months of declines. But confidence dropped sharply again in April.

Consumer spending accounts for two-thirds of all economic activity and has been the main force supporting the nation's economy, which grew at an annual rate of 2 percent in the first quarter.

That was double the 1 percent growth rate of the previous quarter. Still, the 2 percent pace was much slower than the 5.2 percent rate of growth averaged in the first half of last year, before the economic slowdown.

The Federal Reserve has cut interest rates four times this year, totaling 2 percentage points, to stave off inflation. The reductions are designed to induce consumers to spend and businesses to invest, which would boost economic growth.

In February, Americans' spending rose by 0.2 percent, according to revised figures, slightly weaker than the government previously estimated. But income growth was revised up to 0.5 percent, slightly stronger than previously thought.

In March, spending on durable goods - costly manufactured items expected to last at least three years, such as cars and appliances - decreased by 1.1 percent, following a 1.6 percent rise the month before.

Spending for nondurables, such as food, was flat, after a 0.5 percent drop in February. Spending on services, which includes gas and electric utilities, rose 0.7 percent, up from a 0.2 percent increase.

With income growth outpacing spending, Americans' personal savings rate - savings as a percentage of after-tax income - rose to a negative 0.8 percent in March from a negative 1.0 percent in February.

Even with the improvement, analysts say, the savings rate doesn't provide a complete picture of household finances because it doesn't capture gains realized from such things as higher real-estate values or from financial investments.