US Consumer Spending Rises as Incomes Increase

Consumer spending in the U.S. climbed in March after the biggest gain since August 2009, and incomes picked up, indicating the biggest part of the economy will help sustain the expansion.

Household purchases, which account for about 70 % of the economy, increased 0.3 %, after a revised 0.9 % gain the prior month that was stronger than first reported, Commerce Department figures showed today in Washington.

The median estimate of 72 economists  called for a 0.4 % rise. Incomes advanced 0.4 %, the most in three months, and the savings rate rose.

A job market that’s on the mend and warmer weather underpinned household purchases, which grew in the first quarter by the most in more than a year as sales climbed at car dealerships and retailers like Target Corp. (TGT) A pickup in hiring and wages is needed to maintain this quarter’s pace of spending.

“American consumers continuing to increase their spending is good for all sectors of the economy,” Steve Latin-Kasper, an economist at the Detroit-based National Truck Equipment Association, said before the report. “We’re beginning a virtuous circle. The expansion is here to stay.”

Projections for spending ranged from increases of 0.2 % to 1.2 %. The February reading was revised from a gain of 0.8 %.

Stock-index futures held losses after the figures as data showed Spain entered in to a recession. The contract on the Standard & Poor’s 500 Index expiring in June fell 0.3 % to 1,395 at 8:32 a.m. in New York.

The increase in March incomes followed a 0.3 % gain the prior month that was revised higher. Last month’s increase matched the median forecast in the Bloomberg survey.

Wages and salaries climbed 0.3 % after 0.4 % gains in the prior three months.

Disposable income or the money left over after taxes, climbed 0.2 after adjusting for inflation, the first gain this year.

Spending adjusted for inflation, the figures used to calculate gross domestic product, rose 0.1 % after a 0.5 % increase. Purchases of durable goods fell 0.2 % March after a 2.1 % surge in February. Services spending was little changed after a 0.4 % gain.

The saving rate increased to 3.8 % from 3.7 %.

Household spending rose 2.9 % from January through March, Commerce Department data showed on April 27. Gross domestic product climbed at a 2.2 % annual rate, less than projected and following a 3 % pace the prior quarter.

The report was a reminder of the concerns of Federal Reserve officials, who last week said growth will be “moderate” as unemployment remains “elevated.”

The central bank “expects economic growth to remain moderate over coming quarters and then to pick up gradually,” policy makers said in an April 25 statement. They repeated a plan to hold borrowing costs low through 2014 to spur growth.

Employers increased payrolls by 635,000 from January through March, the biggest quarterly gain since the first three months of 2006.

Later this week, the Labor Department may report payrolls advanced in April by 165,000 after a 120,000 gain the prior month, according to the Bloomberg survey median. Unemployment probably held at 8.2 %. The rate has been above 8 % since early 2009.

Unseasonably mild temperatures may have also spurred Americans to dine out and go shopping. The January to March period was the warmest first quarter on records going back to 1895, according to the National Oceanic and Atmospheric Administration.

Retailers posted gains in March as stores offered discounts and shoppers stocked up early on spring gear. March same-store sales at Target, the second-largest U.S. discount chain, and Gap Inc. (GPS), the biggest U.S. apparel chain, beat the average estimate of analysts. Cars sold last quarter at the fastest pace in four years, according to industry data.

Employment and income gains may have given Americans some relief from higher fuel prices. The cost of a gallon of gasoline at the pump jumped 65 cents from the beginning of the year to $3.93 on March 31, which was the highest level in 10 months, according to AAA, the largest U.S. auto group. Fuel costs have eased since, reaching $3.82 on April 29, as Bloomberg stated.

Consumers also are spending on leisure. Starwood Hotels & Resorts Worldwide Inc. (HOT), owner of the luxury St. Regis and W brands, said first-quarter earnings rose more than fourfold, driven by sales of vacation units at the company’s new resort in south Florida.

“Our corporate clients and our leisure guests tell us that their appetite for travel is quite robust,” Frits van Paasschen, president and chief executive officer, said in an earnings conference call with analysts on April 26. “I still have yet to hear from a customer that plans to travel less in 2012 than in 2011.”

Some reports indicate Americans are becoming more confident as their outlook on the economy improves. The Thomson Reuters/University of Michigan’s final index of sentiment increased in April to the highest level in a year.

Its gauge of consumer expectations for six months from now -which more closely projects the direction of consumer spending- also rose.

Today’s data showed an index of inflation, which is tied to spending patterns and excludes food and fuel, increased 2 % from March 2011, compared with a 1.9 % gain in the 12 months ended in February.

The so-called core price index rose 0.2 % from the prior month, matching the median forecast.

Fed officials have defined their inflation goal as 2 % a year.


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