Consumer spending in the U.S. rose in March by the most in five months, pointing to a recovery that may accelerate when the economy creates more jobs.
Growing demand at retailers such as Macy’s Inc. and Starbucks Corp. boost the odds hiring will accelerate, leading to a sustainable economic rebound. Household spending, which accounts for about 70 percent of the economy, may contribute more to the expansion in coming months as incomes rise.
The median estimate of 66 economists surveyed called for a 0.6% increase in spending, after an originally reported gain of 0.3% increase the prior month. Projections ranged from advances of 0.2% to 1%.
The 0.3% gain in incomes followed little change in February. The median estimate of economists surveyed called for a 0.3 percent advance. Wages and salaries in March rose 0.2% after climbing 0.1% in February.
Today’s report showed prices stabilized. The inflation gauge tied to spending patterns increased 2% from March 2009, compared with a 1.8% increase in the 12 months ended in February.
The Fed’s preferred price measure, which excludes food and fuel, rose 0.1 in March and was up 1.3% from a year earlier, the same as in February.
Adjusted for inflation, spending climbed 0.5% for a second month.
Because spending rose faster than incomes, the savings rate declined to 2.7%, the lowest level since September 2008.
Incomes in the first quarter were depressed by government assumptions about taxes on capital gains. The increases in stock prices also helped propel spending, which is one reason the savings rate dropped, according to economists at JPMorgan Chase & Co. in New York.
Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, jumped 3.4% in March, the most since August.
Purchases of non-durable goods increased 0.4%, and spending on services, which account for almost 60% of all outlays, were little changed.
The economy grew at a 3.2% annual rate in the first quarter, after expanding at a 5.6% pace in the last three months of 2009, figures from the Commerce Department showed last week. Consumer spending accelerated to a 3.6% pace, the biggest gain in three years.
The labor market is likely to determine the pace of spending in coming months, according to economists such as Neal Soss, chief economist at Credit Suisse in New York. The jobless rate is projected to end the year at 9.4%, according to the median estimate of economists surveyed by Bloomberg last month. Unemployment reached 10.1% in October, the highest level since 1983.
Some companies are already hiring as a result of rising sales. Caterpillar Inc., the world’s largest maker of construction equipment, had its first earnings increase in seven quarters as demand rose, and said it will bring back at least 9,000 jobs this year of the 19,000 it cut globally in 2009. The Peoria, Illinois-based company has added about 1,500 workers since year-end because of higher production, including 600 in the U.S.
Payrolls jumped by 162,000 workers in March, the Labor Department said last month. Economists anticipate the government’s employment report on May 7 will show the economy created more jobs in April, according to the survey median.
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