US consumer spending surges in March, boosts growth outlook

New data cements views the economy ended a dismal first-quarter on solid footing

Thu, May 1, 2014, 15:35

US consumer spending recorded its largest increase in more than four and a half years in March, cementing views the economy ended a dismal first-quarter on solid footing.

The Commerce Department said consumer spending increased 0.9 per cent after rising by a revised 0.5 per cent in February.

March’s gain was the biggest since August 2009. Spending was previously reported to have increased 0.3 in February.

Economists polled by Reuters had forecast consumer spending, which accounts for more than two-thirds of US economic activity, rising 0.6 per cent in March.

The report added to data ranging from employment to industrial production in suggesting there was momentum in the economy at the tail end of a very difficult first quarter, which provides a springboard for faster growth in the April-June period.

The economy grew at an only 0.1 per cent annual rate in the first three months of the year. Economists and Federal Reserve officials, however, pinned the slowdown on the impact of a brutal winter. A moderation in the pace of restocking by businesses, which is likely temporary, also weighed on growth.

In March, consumer spending was buoyed by a 1.4 per cent surge in goods purchases. Spending on durable goods rose 2.7 per cent, the largest increase since March 2010. Spending on services also increased by a solid 0.7 per cent, reflecting increased demand for utilities and healthcare services.

When adjusted for inflation, consumer spending increased 0.7 per cent in March after advancing 0.4 per cent in February. March’s increase in so-called real consumer spending was also the largest since August 2009.

The data was included in the first-quarter gross domestic product report, which was published yesterday.

Income increased 0.5 per cent in March, the biggest gain since August, after rising 0.4 per cent in February.

Income continues to be supported by government subsidies for healthcare payments. Income at the disposal of households after adjusting for inflation and taxes rose 0.3 percent after rising by the same amount in February.

With spending outpacing income growth, the saving rate, which is the percentage of disposable income households are socking away, fell to 3.8 per cent in March from 4.2 per cent in February. The March saving rate was the smallest since January 2013.(Reuters)