Published: May 01, 2008 09:32 am            

Consumer spending up but much of gain reflects higher prices

WASHINGTON — Soaring prices for food, gas and other everyday products pushed up consumer spending to a faster pace than expected in March.

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

However, once inflation was removed, spending edged up a much slower 0.1 percent. That represented 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, the Labor Department reported that claims for unemployment benefits rose by 35,000 to 380,000. That was a much bigger increase than the 18,000 than private economists had expected and highlighted 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.

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.

        

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