Consumer spending ekes out 0.1% increase in March

Consumer spending barely budged in March, the fourth lackluster month as Americans grappled with higher food and energy prices amid an economic downturn.

Spending grew just 0.1 percent in March when adjusted for inflation, after staying flat in February and recording a slight rise in January, the Commerce Department reported yesterday. At the end of last year, spending actually declined.

Unadjusted consumer spending rose 0.4 percent in March, more than expected, but that figure does not take into account the immense price run-up in food and gasoline.

The report revealed reasons why Americans cut back on purchases: Workers' wages continued to grow at an anemic pace in March, even as higher prices for food and gasoline put a pinch on pocketbooks.

Income rose 0.3 percent in March, down from an increase of 0.5 percent in February. After taxes, and adjusted for inflation, Americans' income stayed flat for the month.

At the same time, Americans found themselves spending more for the basics. Inflation, already at elevated levels, accelerated in March, the report said, with costs now 3.2 percent higher than they were a year earlier. On a monthly basis, costs were up 0.3 percent in March after rising 0.1 percent in February.

Of the Americans who did spend, most of their money went toward services, including necessities like haircuts and medical care. Sales of big-ticket items like washing machines and TV sets declined in March, the report said, a signal that Americans were putting off large-scale purchases, which are commonly bought on credit.

The bleak report does not bode well for the economy. Spending is the primary engine of the economy, accounting for more than two-thirds of gross domestic product. An earlier report on the economy's performance in the first quarter, released Wednesday by the Commerce Department, showed consumption at its weakest point since the recession of 2001.

Yesterday's report also provided little comfort to the Federal Reserve, which is attempting to avoid a recession while keeping price pressures in check. The Fed, in determining inflation dangers, is said to keep close track of a figure in the report that measures prices of goods that exclude energy and food products, which are considered volatile from month to month. This figure, known as the core personal consumption expenditures price deflator, ticked up to 2.1 percent in March from 2 percent in February, slightly above the Fed's presumed "comfort zone."

In addition, the personal savings rate slipped to 0.2 percent in March, down from 0.4 percent in February, the Commerce Department said.

Separate reports yesterday revealed problems in the construction and manufacturing sectors, which have been battered over the past year by the housing slump. Residential construction fell sharply in March, shrinking 4.6 percent as builders cut back on groundbreakings or stopped work on projects. Overall, spending on construction declined 1.1 percent in March after rising 0.4 percent in February, the Commerce Department said.

Meanwhile, a bellwether of manufacturing activity stayed flat in April as companies laid off workers. The Institute of Supply Management's index was unchanged at 48.6 last month. Inventories and export orders rose, but new orders stagnated.

Wall Street's focus turns now to the Labor Department's report on unemployment in April, to be released today.