WASHINGTON — Americans increased their spending more slowly in March, suggesting some are worried that their paychecks aren’t growing fast enough.
The Commerce Department said Monday that consumer spending increased just 0.3 per cent last month after a 0.9 per cent gain in February.
Income grew 0.4 per cent following a 0.3 per cent gain in February. But after-tax income when adjusted for inflation increased just 0.2 per cent in March. The gain followed two months of declines.
Consumer spending, which accounts for 70 per cent of economic growth, rose 2.9 per cent in the January-March quarter — the fastest pace in more than a year. The increase was a bright spot in an otherwise weak first quarter for economic growth.
But Paul Dales, senior U.S. economist at Capital Economics, noted that stronger spending in January and February drove the quarterly increase. And consumers spent more while saving less, which suggests they cannot sustain their spending pace without better pay.
“Real incomes will need to grow at a faster rate to prevent consumption growth from slowing,” said Dales. He noted that Friday’s report on April hiring is a crucial sign of where the economy is headed.
The government reported Friday that the overall economy grew at an annual rate of 2.2 per cent in the January-March quarter. That’s down from 3 per cent annual growth in the October-December period. The weakness mainly reflected government budget-cutting and weaker business investment.
In March, consumers spent 0.9 per cent more on non-durable goods, such as clothing. Spending on durable goods, such as cars and appliances, fell 0.3 per cent. Spending on services such as utilities and rent was mostly flat.
An inflation gauge tied to consumer spending rose a modest 0.2 per cent in March. Over the past 12 months, the index is up 2.1 per cent, just above the Federal Reserve’s 2 per cent inflation target
Some economists worry consumers can’t keep spending as freely as they did in the first three months of this year without bigger pay raises. After-tax income rose just 0.6 per cent in the first three months compared with a year earlier. That was the smallest pay increase in two years.
The savings rate edged up to 3.8 per cent in March, after dropping to a 30-month low of 3.7 per cent of after-tax income in February.
A healthy job market could reinvigorate consumers. But the economy created just 120,000 jobs — half the pace of the previous three months.
Economists predict employers added 163,000 jobs this month, slightly better than March’s figures but below the pace from December through February.
One positive change since the winter: gas prices appear to have peaked. That would give consumers more to spend elsewhere.
The nationwide average for a gallon of regular gasoline stood at $3.83 on Friday, down eight cents from a month ago, according to AAA’s fuel gauge report.