Consumer Spending

WASHINGTON — Americans spent less than expected in March, pulling back after a burst of buying during the first two months of the year. The reversal was tied to a larger-than-anticipated decline in income and is a stark reminder of a fragile economy trying to rise out of a deep recession.

The Commerce Department data released Thursday highlighted one of the big wild cards for the economy: consumers’ appetite to spend in the months ahead.

The outcome will be determined in part by how much the tax rebates in President Barack Obama’s economic stimulus package and historically low mortgage rates mitigate the financial pain caused by rising unemployment and falling home values.

Consumer spending fell 0.2 percent in March. Americans’ incomes tumbled 0.3 percent for the month, reflecting wage cuts and layoffs as employers cut costs. Both the income and spending figures were weaker than economists had expected.

"Consumption fell in March, but let’s not panic a whole lot,” said Joel Naroff, president of Naroff Economic Advisors. "The modest drop-off in spending does not change the fact that individuals are starting to buy more things and are attempting to live their lives a little more normally.”

Rise follows deep dive
Consumer spending grew at an annualized rate of 2.2 percent in the first quarter, the government said Wednesday in reporting on the nation’s gross domestic product.
The first-quarter rebound came after consumers had gone into a deep hibernation at the end of 2008, slashing spending by the most in 28 years.

Many analysts say the worst of the recession is over in terms of lost economic growth, but caution that pain in the labor market and elsewhere will persist well into next year or even longer.

The revival in consumer spending in the first quarter was overwhelmed by cutbacks by businesses, causing the economy to contract by 6.1 percent.

Christina Romer, chairwoman of Obama’s Council of Economic Advisers, predicted another economic contraction in the second quarter albeit at a slower pace and delivered a downbeat assessment about unemployment.

Meanwhile, analysts are hopeful that the recession will ease its firm hold on the economy during the April-June quarter.


by the associated press