Personal Income, Spending Growth Slow in March

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

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

The rise in spending was the smallest since a 0.1% increase in December. The gain in income also was the weakest this year.

At the same time, the report showed 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% for a third straight month.

Few signs of price pressures and the slower pace of spending help explain why the Fed is expected to leave its benchmark overnight bank lending rate at a 40-year low of 1.75% 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 they’re willing to allow the recovery to gather strength.

Consumer spending grew at a 3.5% rate in the first quarter, as the economy expanded at a 5.8% pace. First-quarter spending was slower than the 6.1% rate in the final three months of last year.

The economy probably will slow to a 3.4% growth rate this quarter and stay close to that pace in the second half of the year, according to the latest consensus estimate of the Blue Chip Economic Indicators survey of about 50 economists.

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

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