US consumer spending slowed in March, income rose

[May 01, 2012]  WASHINGTON (AP) -- Americans increased their spending more slowly in March, a sign that scant pay increases may be causing consumers to become more cautious.

Their spending rose 0.3 percent last month, just one-third the increase in February.

Slow wage growth and softer consumer spending gains are the latest evidence that the economy might be weakening after a strong first two months.

Economists say a warm winter made the economy look better because it caused some activity that normally occurs in spring -- from hiring to home sales -- to occur in January and February. That made March's gain smaller.

A more troubling factor in the long run is that Americans are receiving little or no pay raises. "Real" income -- income adjusted for inflation -- has been growing too slowly to sustain healthy increases in consumer spending, many economists say.

After-tax income rose just 0.6 percent in the first three months of 2012 compared with a year earlier. That was the smallest gain in two years.

"Real incomes will need to grow at a faster rate to prevent consumption growth from slowing," said Paul Dales, senior U.S. economist at Capital Economics.

Before the Great Recession, a healthy gain in consumer spending was between 5 percent and 6 percent a year. March's increase was roughly half that pace.

And if income, adjusted for inflation, continued to grow at March's rate, the annual growth would be roughly 2.5 percent. While that's better than a decline, economists consider it a weak figure.

The U.S. economy depends on consumer spending for roughly 70 percent of activity. Many people have been increasing their spending by saving less.

For the full January-March quarter, consumer spending rose at an annual rate of 2.9 percent, the fastest pace in more than a year. The increase was a bright spot in an otherwise sluggish quarter. Dales noted that spending in January and February drove the quarterly increase.

Without better pay, that trend isn't sustainable. The savings rate edged up to 3.8 percent in March, after dropping to a 30-month low of 3.7 percent of after-tax income in February.

And income, adjusted for inflation, inched up just 0.2 percent after declining for two straight months.

In the January-March quarter, the economy grew at an annual rate of 2.2 percent. That was down from a 3 percent annual growth rate in the October-December period. The weakness mainly reflected slower gains in government spending and weaker business investment.

An inflation gauge tied to consumer spending rose a modest 0.2 percent in March. Over the past 12 months, the index has risen just above the Federal Reserve's 2 percent inflation target

A healthy job market could reinvigorate consumers because more jobs mean more money to s(pend. But the economy created just 120,000 jobs in March -- half the pace of the previous three months.

Economists predict that employers will have added 163,000 jobs this month, 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.

[Associated Press; By MARTIN CRUTSINGER]

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