USA consumer spending inches up in March

While the U.S. Commerce Department released a report on Friday showing a slightly bigger than expected increase in personal income in March, the report also showed a slightly smaller than expected increase in personal spending.

Household purchases, which account for nearly 70 percent of the economy, rose at a 1.9 percent annual pace last quarter, compared with 2.4 percent in the final three months of a year ago. The majority of the increase was due to a $26.3 billion increase in private sector wages and salaries. Many economists believe the Fed will not raise rates again until the second half of this year.

It’s also the Federal Reserve’s preferred way to measure inflation, and the year-on-year gain in core PCE is closely watched by economists.

The additional money goes further because of low inflation, which has been caused by falling oil prices.

Personal saving rose from $696.4 billion in February to $735.5 billion in March, a savings rate of 5.4% compared with 4.1% in the prior month.

Taken together, the two reports “suggest that the long-awaited acceleration in compensation growth and overall inflation has not yet arrived”, said Xiao Cui, an economics research associate at Credit Suisse, although she highlighted anecdotal reports of wage pressures in the Fed’s most recent Beige Book.

Year over year, the PCE price index rose 0.8% in March and the index excluding food and energy rose 1.6%. Annual growth still slowed to 1.6% from 1.7%.

The saving rate rose to 5.4 percent last month, the highest in more than a year. However, US March individual income may not pick up markedly from February given limited growth in US March wages.

“When combined with healthy employment gains, healthy balance sheets, we think the conditions are ripe for a rebound in consumption growth in the second quarter”. The weakness played a big role in the first quarter when the economy expanded at a weak 0.5 percent rate, the slowest increase in two years.

In a fourth report, the Institute for Supply Management-Chicago said its Chicago business barometer declined 3.2 points to a reading of 50.4 in April as new orders fell and factory employment contracted.