US consumers boost spending by 0.2% in March

Monday 29 April 2013 15.10
US consumer spending up 0.2% in the first three months of 2013
US consumer spending up 0.2% in the first three months of 2013

Americans kept increasing their spending in March and their income grew, further indication that consumers are shaking off higher taxes.

The Commerce Department said that consumer spending rose 0.2% in March from February. That followed a 0.7% jump in February and a 0.3% gain in January.

Income increased 0.2% last month, following a gain of 1.1% in February.

After-tax income also rose 0.2%. Higher income has helped offset an increase in Social Security taxes that took effect on January 1.

On Friday, the US government said consumer spending rose from January to March at the fastest pace in more than two years.

Spending on services drove the March increase was was partly due to an unseasonably cold March, which required Americans to pay more to heat their homes. But higher spending on utilities does not signal consumer confidence the way purchases on household goods, such as new appliances or furniture, typically do.

Other reports suggest consumers may be starting to feel the impact of the tax increase. Sales at retail stores and restaurants fell in March by the most in nine months.

The 2 percentage point tax increase has reduced tax-home pay for nearly all Americans. A person earning $50,000 a year will have about $1,000 less to spend this year. A household with two highly paid workers will have up to $4,500 less. That may slow consumer spending and economic growth in the April to June quarter.

Consumer spending accounts for about 70% of economic activity. Other trends may offset some of the impact of the taxes this year. Consumers have cut their debts and rising home values and stock prices have increased household wealth.

In addition, petrol has become cheaper. A decline in fuel prices leaves consumers with more money to spend on other things.

On Friday, the Commerce Department said the economy expanded 2.5% at an annual rate in the January to March quarter. That was much better than the 0.4% growth recorded in the fourth quarter.

Growth was buoyed by the large increase in consumer spending. In a healthy economy, with an unemployment rate between 5-6%, GDP growth of 2.5% or 3% would be considered solid. But the US has not been able to maintain that pace since the recession ended nearly four years ago.

And in today's still-struggling recovery, with unemployment at 7.6%, the economy needs faster growth to generate enough jobs to quickly shrink unemployment. Since the Great Recession officially ended in June 2009, growth has remained weaker than usual after a severe downturn. The economy expanded just 2.4% in 2010, 1.8% in 2011 and 2.2% in 2012.