Consumer spending surges in March, boosts growth outlook

WASHINGTON Thu May 1, 2014 8:46am EDT

Store employee Ashley Beal takes an order via a smartphone app to be delivered to the customer by a Google car and courier at a toy and sporting goods shop in Palo Alto, California March 17, 2014. REUTERS/Robert Galbraith

Store employee Ashley Beal takes an order via a smartphone app to be delivered to the customer by a Google car and courier at a toy and sporting goods shop in Palo Alto, California March 17, 2014.

Credit: Reuters/Robert Galbraith

WASHINGTON (Reuters) - U.S. consumer spending recorded its largest increase in more than four and a half years in March, cementing views the economy ended a dismal first-quarter on solid footing.

The Commerce Department said on Thursday that consumer spending increased 0.9 percent after rising by a revised 0.5 percent in February.

March's gain was the biggest since August 2009. Spending was previously reported to have increased 0.3 in February.

Economists polled by Reuters had forecast consumer spending, which accounts for more than two-thirds of U.S. economic activity, rising 0.6 percent in March.

The report added to data ranging from employment to industrial production in suggesting there was momentum in the economy at the tail end of a very difficult first quarter, which provides a springboard for faster growth in the April-June period.

The economy grew at an only 0.1 percent annual rate in the first three months of the year. Economists and Federal Reserve officials, however, pinned the slowdown on the impact of a brutal winter. A moderation in the pace of restocking by businesses, which is likely temporary, also weighed on growth.

In March, consumer spending was buoyed by a 1.4 percent surge in goods purchases. Spending on durable goods rose 2.7 percent, the largest increase since March 2010. Spending on services also increased by a solid 0.7 percent, reflecting increased demand for utilities and healthcare services.

When adjusted for inflation, consumer spending increased 0.7 percent in March after advancing 0.4 percent in February. March's increase in so-called real consumer spending was also the largest since August 2009.

The data was included in the first-quarter gross domestic product report, which was published on Wednesday.

Income increased 0.5 percent in March, the biggest gain since August, after rising 0.4 percent in February.

Income continues to be supported by government subsidies for healthcare payments. Income at the disposal of households after adjusting for inflation and taxes rose 0.3 percent after rising by the same amount in February.

With spending outpacing income growth, the saving rate, which is the percentage of disposable income households are socking away, fell to 3.8 percent in March from 4.2 percent in February. The March saving rate was the smallest since January 2013.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

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