April 29, 2013 / 1:16 PM / 4 years ago

WRAPUP 3-U.S. consumer spending rises, driven by utility costs

* Consumer spending rises 0.2 percent in March
    * Drop in prices likely to receive scrutiny at Fed
    * Big jump in utility spending; demand for goods weak
    * Pending home sales increase 1.5 percent in March

    By Lucia Mutikani
    WASHINGTON, April 29 (Reuters) - U.S. consumer spending
unexpectedly rose in March, temporarily boosted by demand for
utilities due to colder weather, according to data on Monday
that did little to alter a picture of a cooling in the economy.
    The Commerce Department said consumer spending advanced 0.2
percent last month after a 0.7 percent rise in February. 
    The increase, which beat economists expectations for a flat
reading, was driven by higher spending on services as outlays on
utilities posted a second straight month of hefty gains.
Spending on goods, a key measure of underlying demand, fell.
    "Utilities made up a pretty decent chunk of spending," said
Ryan Sweet, a senior economist at Moody's Analytics in West
Chester, Pennsylvania. "When you extract from that, spending was
less than impressive in March. The economy is slowing."
    The economy's weakness was underscored by a sharp cooling in
inflation, with a price index for consumer spending falling for
the first time since November. A core reading that strips out
food and energy costs was flat.
    The combination of soft demand and benign inflation should
allow the Federal Reserve to continue on its ultra-easy monetary
path when it meets on Tuesday and Wednesday. The U.S. central
bank is widely expected to keep purchasing bonds at a pace of
$85 billion a month. 
    "The case for tapering the size of the Fed's monthly asset
purchases is further reduced," said Michelle Girard, chief
economist at RBS in Stamford, Connecticut. "However, we think
the hurdle for the Fed boosting the monthly purchase pace is
high."
    Accounting for the drop in prices, inflation-adjusted
spending grew 0.3 percent in March, matching February's
increase. Spending on utilities on an inflation-adjusted basis
recorded the largest increase since October 2001.
    "Much of the upside in March was in a second straight
enormous gain in utilities consumption, which appears likely to
see a substantial reversal in coming months," said Ted Wieseman,
an economist at Morgan Stanley in New York.
    
  
    
    HOUSING REMAINS ECONOMIC BRIGHT SPOT      
    A private-sector report on Monday showed signed contracts to
buy previously owned homes rose 1.5 percent last month to the
highest level since April 2010, showing underlying strength in
the housing recovery even though the pace of sales growth has
cooled in recent months.
    Prices for longer-dated U.S. government bonds rose on the
inflation reading, while the dollar fell against a basket of
currencies. Stocks on Wall street rose as investors also focused
on the upbeat housing data.
    The U.S. economy grew at a 2.5 percent rate in the first
quarter, accelerating from a 0.4 percent rate in the last three
months of 2012. But a range of data from retail sales to factory
activity weakened in March, and growth estimates for the second
quarter are currently in a range of 1.0 percent to 1.5 percent.
    Some economists, however, said the better-than-expected
reading on consumer spending in March, and the cooling in
inflation, could mean those forecasts are understated.
   "This makes it much more likely than we thought for real
consumer spending to post a solid gain in the second quarter and
increases the chances that real GDP growth in the second quarter
will come in above 2 percent," said John Ryding, chief economist
at RDQ Economics in New York.
    
    FALLING PRICES LEND A HAND
    The data on spending showed that consumer prices rose just
1.0 percent over the last 12 months, the smallest gain in nearly
3-1/2 years and down from a 1.3 percent rise in February.
    The deceleration extended to core prices, which were up 1.1
percent from a year ago after advancing 1.3 percent the prior
month. The March increase was the smallest in two years and well
below the Federal Reserve's 2 percent target.
    The lack of inflation is helping to support the purchasing
power of U.S. households. Income at the disposal of households
after inflation and taxes increased 0.3 percent last month after
a 0.7 percent gain in the prior month.
    With income growth matching spending, the saving rate - the
percentage of disposable income households are socking away -
was unchanged at 2.7 percent.

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