Tuesday, 16 October, 2018

U.S. consumer spending rebounded 0.4 percent in March

Disappointing Performance       U.K. economy barely eked out any growth at start of 2018              Source Office for National Statistics Disappointing Performance U.K. economy barely eked out any growth at start of 2018 Source Office for National Statistics
Russell Knight | 30 April, 2018, 22:17

The so-called core PCE price index - the Federal Reserve's preferred measure of inflation - rose 0.2 month-on-month in March after a similar gain in February.

An inflation gauge tied to consumer spending advanced 1.9 percent in March compared to 12 months ago.

The Commerce Department's report on Monday also showed consumer spending, which accounts for more than two-thirds of US economic activity, increased 0.4 percent in March after being unchanged in February. Other Fed officials argue that such a move would run the risk of allowing inflation pressures to get out of hand and force the central bank to slam on the brakes by raising interest rates so quickly that it could push the country into a recession.

The Fed's willingness to allow inflation to go above its objective is partly predicated on the fact that it's spent almost all its time below 2 percent since the goal was adopted in 2012.

"I don't think they change their gradual rate path until we've moved decisively above 2 percent and they're concerned that they're going to pierce 2-1/2", said Bank of America's Harris.

The rise in consumer spending, which accounts for 70% of the economy, gives the economy some momentum at the end of an otherwise weak quarter and provides some support for forecasts that consumption will accelerate this quarter as tax cuts and a gradual pickup in wages filter into Americans' bank accounts and sentiment. Based on that measure, the economy slowed in the first quarter.

The price gauge linked to consumption rose 2% from a year earlier after 1.7% in February; excluding food and energy, which officials see as a better gauge of underlying trends, it was up 1.9%.

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Meanwhile, personal incomes rose a moderate 0.3 percent in March, matching the February gain.

"We think it's good news but let's not declare victory yet", is how Ethan Harris, head of global economics research at Bank of America Merrill Lynch in NY, predicted Fed officials will react to the numbers. That would be up from three rate hikes past year.

The 0.3 percent rise in incomes reflected a slowdown in the key category of wages and salaries, which rose only 0.2 percent in March, just half the 0.4 percent February gain.

The Fed seeks to achieve moderate annual increases in inflation of around 2 percent but has fallen below that target for the past six years.

Fed officials are scheduled to convene on Tuesday and Wednesday for a regular policy meeting. Many analysts believe stronger consumer spending this quarter will lift overall growth back to rates above 3 percent. Wages gave a hint of accelerating last week in Labor Department data on the employment cost index, while monthly data due this May 4 are projected to show hiring rebounded in April.

Factory activity in Texas accelerated sharply in April, with the Dallas Fed Texas Manufacturing Outlook Survey's production index surging 11 points to a reading of 25.3.

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