Incomes also rose, boding well for future spending. But investors foresee interest rates going up in August.
By Associated Press
Published May 1, 2004
WASHINGTON - Consumers, an important force shaping the economic recovery, spent modestly in March, helping the economy log solid growth in the last quarter.
The Commerce Department reported Friday that consumers boosted their spending by 0.4 percent last month. That followed a 0.4 percent increase in February, according to revised figures. February's increase was double the 0.2 percent advance reported a month ago.
Americans' incomes, meanwhile, also rose solidly in March, increasing by 0.4 percent. That came on top of a 0.5 percent gain in February. The increase was encouraging because income growth is a main factor in people's willingness to spend in the future, economists said.
"With the March rise in personal income, there is a solid base of ready cash to fuel spending increases," said Ken Mayland, president of ClearView Economics.
Wall Street suffered through a trying week, however, as interest rate angst prompted investors to shrug off just about every bit of good economic and earnings news.
Since last June, a key short-term interest rate controlled by the Federal Reserve has been at 1 percent, the lowest since 1958. Fed policymakers meet Tuesday and are expected to stay the course.
With the economy gaining traction and inflation picking up, however, some economists believe the Fed will begin to raise rates in August. Fed chairman Alan Greenspan told Congress last week that the low rates must rise at some point to keep inflation in check, but he did not say when that might happen.
"I think they (Fed policymakers) are softening us up to get us ready for a tightening this summer," said Bill Cheney, chief economist at MFC Global Investment Management.
For the week, the Dow Jones industrials lost 247.27, or 2.4 percent, closing at 10,225.57. The Nasdaq composite index bore the brunt of the selling, falling 129.62, more than 6 percent, and closing at 1,920.15. The S&P 500 lost 33.30, or nearly 3 percent, and finished at 1,107.30.
Consumer spending accounts for roughly two-thirds of all economic activity in the United States. Their behavior plays a major role in determining the strength of the economy's recovery.
The rise in consumer spending in March wasn't as large as the 0.7 percent increase economists were forecasting. Last month's income growth, however, matched analysts' expectations.
The economy grew at a solid 4.2 percent annual rate in the January-to-March quarter, a slight improvement from the 4.1 percent growth rate in the previous quarter, the government reported Thursday.
Consumer spending from January through March grew at a respectable annual rate of 3.8 percent, following a 3.2 percent pace in the fourth quarter.
In March, consumer spending on big-ticket durable goods, such as cars and appliances, rose 0.4 percent, following a 0.7 percent increase in February.
Spending on foods, clothes and other nondurable goods advanced 0.8 percent in March, double the 0.4 percent rise registered in the previous month. Spending on services went up 0.2 percent, after a 0.4 percent gain.
Tax refunds, an improving job climate and super-low interest rates helped to support consumer spending last month, economists said.
