Consumer spending up faster than income in March

May 3, 2010 · Tagged with Others Tips 

Consumer spending rose in March by the largest amount in five months but the gains were financed out of savings, which fell to the lowest level in 18 months. A slight rise in incomes added to concerns that the recovery could weaken unless income growth increases more rapidly.

The Commerce Department said consumer spending rose 0.6 percent in March, matching economists’ expectations. Personal incomes edged up just 0.3 percent, raising new worries about lackluster income growth.

The March surge in spending was propelled by savings, which drove the personal savings rate down to 2.7 percent of after-tax incomes, the lowest level since September 2008.

The fear is that income growth will remain weak, reflecting severely high unemployment, as the job market continues to show the effects of the nation’s worst recession since the Great Depression.

Unless businesses boost hiring, households will not have the incomes needed to support consumer spending, which accounts for 70 percent of economic activity. That would put the economic recovery in jeopardy.

Two other reports offered more a mixed picture of the recovery.

Commerce said construction spending rose 0.2 percent in March, the first increase in five months. But all the strength came in government activity as private sector building fell to the lowest level in a decade. Weakness in construction remains a drag on the economy.

In the meantime, U.S. manufacturing is helping sustain the rebound. Factory activity expanded at the fastest pace in nearly six years, according to a report from the Institute for Supply Management, a trade group of purchasing executives. It said its manufacturing index rose to 60.4 in April from 59.6 in March. It’s the ninth straight month of growth. A level above 50 indicates expansion.

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