Two signs that U.S. economy may have started to cool

Income and spending slowed growth in March

April 30, 2002|By BLOOMBERG NEWS

WASHINGTON -- U.S. personal incomes and spending grew in March at the slowest rates in three months, suggesting that the economy began to cool entering the second quarter.

The 0.4 percent gain in incomes followed a 0.6 percent increase in February, the Commerce Department said yesterday. Spending also rose 0.4 percent after a 0.6 percent gain, as purchases of durable goods, such as appliances, nondurables and services slowed.

Consumer spending, which accounts for two-thirds of the economy, may not slow much more as companies such as automakers extend discounts to bolster sales. At the same time, because spending held up during the recession, it isn't likely to result in faster economic growth in coming quarters, economists said.

"You'll see household spending that leads to growth, but with not nearly the power that you usually see coming out of a recession," said Tim Rogers, chief economist at Briefing.com, an independent financial advisory service, in Boston.

The March rise in spending was the smallest since a 0.1 percent increase in December. The gain in incomes was also the weakest this year. At the same time, the report showed that businesses are keeping prices in check to maintain sales. The personal consumption price index excluding food and energy, an inflation gauge watched by Federal Reserve policymakers, rose 0.1 percent for a third straight month.

Few signs of price pressures and the slower pace of spending help explain why the Fed is widely expected to leave its benchmark overnight bank lending rate at a 40-year low of 1.75 percent when it meets next week.

Central bankers, who said they expect consumer demand to give less of a boost to the recovery in coming months, have signaled that they're willing to allow the recovery to gather strength. Consumer spending grew at a 3.5 percent rate in the first quarter, as the economy expanded at a 5.8 percent pace. First-quarter spending was slower than the 6.1 percent rate in the final three months of last year.

Spending on durable goods such as autos, appliances, and other expensive items intended to last three or more years, rose 0.5 percent in March after a 1.4 percent surge in February. Spending on nondurable goods increased 0.2 percent, half the February gain. Services spending, which accounts for half of the total, rose 0.5 percent after climbing 0.6 percent in February.

Disposable income, or money left over after taxes, increased 0.5 percent in March after rising 0.7 percent a month earlier, the government said. Incomes slowed because wages and salaries rose 0.2 percent in March, half the February rise.

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