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Tuesday, May 1, 2012

Consumers earn more, spend less

WASHINGTON – Americans pared back on spending in March after splurging in February and put away a little more cash in savings last month, according to the latest government data.

Consumer spending climbed a seasonally adjusted 0.3 percent, while income rose slightly faster at 0.4 percent, mainly because of higher government-benefit payments, the Commerce Department reported Monday.

The combination of slower spending and faster income growth pushed up the savings rate to 3.8 percent from a post-recession low of 3.7 percent in February.

Economists caution that consumers cannot keep drawing on their savings to pay for goods and services. Eventually wages will have to rise faster or Americans will cut back, hurting the economy. Consumer spending accounts for up to 70 percent of U.S. economic activity.

In the first quarter, consumer spending grew 2.9 percent to mark the fastest spurt in over a year, according to a preliminary reading of gross domestic product released Friday. Yet most of the gain came in January and February while spending in March contributed less than expected.

The slowdown in spending in March also suggests the economy is losing some momentum as it heads into the second quarter.

Chief economist Stephen Stanley of Pierpont Securities, for instance, trimmed his growth forecast to 2.3 percent from 2.5 percent, saying “the performance in the last month of a quarter tends to provide a statistical carryover for the next quarter.”

Adjusted for inflation, disposable income, or the money left over after taxes, rose 0.2 percent last month, a reversal following a drop of 0.1 percent in February.

Inflation rose 0.2 percent in March based on the latest reading from price index of personal consumption expenditures.

The index has risen 2.1 percent in the past 12 months, down from 2.3 percent in February.

The core PCE, which excludes volatile food and energy costs, also rose 0.2 percent on the month, in line with Wall Street projections.

In the past year, core PCE inflation has risen 2.0 percent.