Gas-cost Hike Brings Sluggish Consumer Spending In March
A customer browses at Forever 21 clothing store in Pasadena, Calif., recently. Consumer spending rose at the slowest rate in five months in March.
AP photo
WASHINGTON — Consumer spending rose at the weakest pace in five months in March as a surge in gasoline prices left shoppers with little left over for other items.
The Commerce Department reported Monday that consumer spending on all items was up 0.3 percent last month, the slowest increase since a similar rise in October. That lackluster gain came even though personal incomes rose by a healthy 0.7 percent last month.
The spending performance in March was even weaker when the effects of higher gasoline prices were removed. After adjusting for price increases, consumer spending actually fell by 0.2 percent in March, the poorest showing since September 2005 when the economy was suffering the aftershocks of Hurricane Katrina.
“People spent more in March but may be enjoying it less as the rising price of energy is cutting into what they actually take home,” said Joel Naroff, chief economist at Naroff Economic Advisors, a private consulting firm.
The weaker-than-expected consumer spending added to worries that the economy could be in danger of stalling out if consumer confidence falters further in the face of rising gasoline prices and a slumping housing market.
“Unless spending posts unusually large gains in May, the second-quarter consumption number is practically guaranteed to be awful,” said Stephen Stanley, chief economist at RBS Greenwich Capital. He predicted that consumer spending will rise at an annual rate of around 1 percent, far below the 3.8 percent rate of spending growth in the January-March quarter.
Stanley said such a sluggish growth rate for consumer spending, which accounts for two-thirds of total economic activity, will translate into overall economic growth as measured by the gross domestic product of slightly above 2 percent in the current April-June quarter.
The government reported last week that the GDP expanded at an anemic 1.3 percent annual rate in the January-March quarter, the weakest showing in four years, raising new worries about the durability of the current five-year-old economic expansion.
A second report Monday showed that construction spending edged up 0.2 percent in March. Spending on housing fell for an 11th month out of the past 12, but this was offset by increases in spending on hotels and other nonresidential projects and on government construction. In addition, construction activity in February was revised up significantly to growth of 1.5 percent, five times the initial estimate of 0.3 percent growth.
Analysts said this big increase will contribute to an upward revision in the GDP for the first quarter to around 1.5 percent or 1.6 percent.
In another sign of the slowdown in housing, the National Association of Realtors reported Monday that purchases of second homes for investment purposes fell by 28.9 percent last year to an annual rate of 1.65 million units while sales of vacation homes managed a 4.7 percent increase to a record 1.07 million units.
Sales of vacation properties and investment homes accounted for 36 percent of all existing and new home sales last year, down from 40 percent in 2005, which was the peak of the five-year housing boom, the Realtors reported.
