Consumer spending climbed in March, capping a lackluster first-quarter performance that was enough to keep the U.S. economy from shrinking.
Purchases rose 0.4 percent, the biggest increase since November, after a 0.2 percent February gain that was larger than previously estimated, Commerce Department figures showed Thursday in Washington. The median forecast of 79 economists in a Bloomberg survey called for a 0.5 percent increase. Incomes were little changed reflecting a drop in dividend payments.
Economists are counting on household spending to do the heavy lifting in reviving growth after slumps in business investment and exports caused the economy to stagger at the start of 2015. An improving job market and nascent acceleration in wage increases are among reasons such a rebound is probably in the works.
“What we went through over the first quarter was simply a soft patch related to the weather and port strikes,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets LLC in New York, and the top forecaster of consumer spending over the last two years, according to data compiled by Bloomberg. “Ending the quarter on a pretty strong note like spending did is indicative of an economy that seems poised to rebound.”
Stock-index futures trimmed earlier losses after the report. The contract on the Standard & Poor’s 500 Index maturing in June fell 0.1 percent to 2,096.9 at 8:49 a.m. in New York.
Projections for spending in the Bloomberg survey ranged from gains of 0.2 percent to 0.7 percent. The previous month’s reading was initially reported as a 0.1 percent increase.
The Bloomberg survey median called for incomes to rise 0.2 percent. The unchanged reading last month followed a 0.4 percent gain in February that was driven by a jump in dividends.
The report represents the monthly breakdown of data published Wednesday that showed consumption climbed at a better-than-expected 1.9 percent in the first quarter. Still, that was less than half the pace of the prior three months, when spending climbed at the fastest rate since 2006.
The U.S. economy barely grew from January to March, with gross domestic product rising at a 0.2 percent annual rate and weighed by harsh winter weather and slumps in business investment and exports. GDP advanced 2.2 percent in the prior quarter, Commerce Department data show.
The Federal Reserve, which is considering raising interest rates for the first time since 2006, said the slowdown during the winter months in part reflects “transitory factors,” according to a statement Wednesday following a two-day meeting. “Although growth in output and unemployment slowed during the first quarter, the committee continues to expect that, with appropriate policy accommodation, economic activity will expand at a moderate pace.”
The Fed repeated it will raise rates when it sees further labor-market improvement and is “reasonably confident” inflation will move back to its 2 percent goal over time.
Thursday’s report showed the price index tied to consumer spending increased 0.2 percent in March, the same as in the prior month. From a year earlier, the gauge was up 0.3 percent. This inflation measure is preferred by Fed policy makers and last met their target in April 2012.
Stripping out the volatile food and energy components, the price measure climbed 0.1 percent from the month before and 1.3 percent in the 12 months ended March.
The report also showed that after adjusting for inflation, which generates the figures used to calculate GDP, purchases increased 0.3 percent last month after being little change in February, which was previously reported as a 0.1 percent drop.
The gain last month was propelled by a 2 percent inflation-adjusted increase in durable goods that reflected a rebound in demand for automobiles.
Cheaper gasoline prices have kept some extra money in consumers’ pockets over the past few months. While the average price of a gallon of the fuel rose to $2.56 on April 28 from a low of $2.03 in January, it’s still below last year’s peak of $3.70.
Companies such as Mastercard Inc., the second-largest payments network, are also feeling the effects of lower gas prices. While payment credit-card spending accelerated outside the U.S., domestic consumers seem to be using spare cash from cheaper gas to pay down debt and prop up personal savings, and “we don’t get any benefit out of a higher savings rate,” said Chief Executive Officer Ajay Banga, Mastercard Inc.
However it doesn’t appear to be a long-term issue, he added. “I think we’re going to look at a somewhat different pattern of consumer spending over the next three to six months just because underlying consumer sentiment is positive.”
Expenditures on services were little changed after adjusting for inflation, Thursday’s figures showed. The category, which tourism, legal help, health care, and personal care items such as haircuts, is typically difficult for the government to estimate accurately until more information is available in later months.
Disposable income, or money left over after taxes, fell 0.2 percent in March from the prior month after adjusting for inflation, the weakest performance since December 2013. It was up 3.3 percent over the past year. The saving rate decreased to 5.3 percent from 5.7 percent in February.
Continued job gains will be needed to support consumer spending in the months to come. Payrolls climbed by 126,000 in March, the weakest since December 2013, after 12 straight months of gains greater than 200,000, according to Labor Department data.
Wages and salaries in the U.S. rose at a faster pace in the first quarter, another report showed Thursday. Worker pay climbed 0.7 percent in the three months through March after a 0.6 percent advance in the third quarter, according to the Labor Department’s employment cost index.
Another Labor Department report showed firings dropped to the lowest level in 15 years. The number of Americans filing claims for unemployment benefits declined by 34,000 to 262,000 in the week ended April 25, the fewest since April 2000.
“Although growth in output and employment slowed during the first quarter, the Committee continues to expect that, with appropriate policy accommodation, economic activity will expand at a moderate pace,” the Fed said in its Wednesday statement.