Consumer Spending Up But Much Of Gain Reflects Higher Prices

(AP Photo/Mark Lennihan)

AP Economics Writer

WASHINGTON (AP) - Soaring prices for food, gas and other everyday needs pushed consumer spending to a faster pace than expected in March.

The Commerce Department reported Thursday that consumer spending was up 0.4 percent, double the increase that economists had forecast.

However, once inflation was removed, spending edged up a much slower 0.1 percent. The March figures represent the fourth straight lackluster performance as consumers have been battered by record gasoline prices, a deep slump in housing and rising job layoffs.

In other economic news, construction spending dropped by 1.1 percent in March. That was the fifth decline in the past six months and was led by a record 4.6 percent plunge in spending on housing.

Housing construction had fallen for 23 straight months before a small 0.2 percent increase in February. But it remains in a steep slump as builders are still struggling to reduce record inventories in the face of the worst housing downturn in more than two decades.

Meanwhile, a closely watched gauge of manufacturing activity posted a reading of 48.6 for April, unchanged from March. That was a slightly better showing than economists had been expecting for the Institute for Supply Management index.

The Labor Department reported that claims for unemployment benefits rose by 35,000 to 380,000 last week. That was a much bigger increase than the 18,000 that private economists had expected, and it highlights the strains that the weak economy is putting on the labor market.

The report on jobless claims came a day ahead of a report on unemployment for April. Economists expect that report will show that the unemployment rate edged up to 5.2 percent, from 5.1 percent in March. The economy is expected to lose 70,000 jobs, for the fourth straight month of job losses.

The White House said the weekly jobless claims are a volatile marker of the economy's health.

"The bottom line is that they're higher than we'd like to see them," White House deputy press secretary Tony Fratto said. He added that a slight rise in the Gross Domestic Product for the first quarter was modestly encouraging news, and was in the range of what the administration had expected.

Consumer spending is being carefully watched out of concerns that too big of a slowdown will push the country into a recession, since two-thirds of economic activity comes from consumers.

The government reported Wednesday that the overall economy, as measured by the gross domestic product, eked out a tiny 0.6 percent growth rate in the first three months of this year as consumer spending slowed to the weakest pace since the second quarter of 2001, when the country was slogging through the last recession.

Despite the slightly positive GDP performance, many economists believe that the economy has fallen into a recession and it will be reflected by a negative GDP figure in the current April-June quarter.

The Federal Reserve on Wednesday cut a key interest rate for the seventh time in the past eight months, although it signaled the quarter-point move may be the last for awhile.

The Fed, worried about rising inflation pressures, is hoping that its previous moves, combined with 130 million rebate payments that started going out this week, will be enough to keep the country from tumbling into a deep recession.

On the inflation front, a price gauge tied to consumer spending rose by 0.3 percent in March, triple the 0.1 percent rise in February. Much of that jump reflected higher food and energy costs. Core inflation, which excludes those categories, rose by 0.2 percent in March and is up 2.1 percent over the past 12 months, higher than the Fed's 1 percent to 2 percent comfort zone.

Personal incomes rose by 0.3 percent in March, slightly slower than the 0.5 percent rise in February.

The personal savings rate, savings as a percent of after-tax income, slipped to 0.2 percent in March from 0.4 percent in February.

(Copyright 2008 by The Associated Press. All Rights Reserved.)

Comments are posted from viewers like you and do not always reflect the views of this station. powered by Disqus