The Commerce Department reported that consumer spending on all items was up 0.3 percent last month, the slowest increase since a similar rise in October. Incomes rose by 0.7 percent, the fourth straight solid month of income growth.
The spending performance was even weaker when the effects of higher gasoline prices were removed. After adjusting for price increases, consumer spending actually fell by 0.2 percent in March, the poorest showing since the fall of 2005 when the economy was suffering the aftershocks of Hurricane Katrina.
``I would expect, especially if gas prices continue to push higher, that consumers are not going to be contributing nearly as much'' to economic growth, Chris Low, chief economist at FTN Financial, said before the report.
``The rise in gasoline prices ate up the gains in nominal spending,'' said James O'Sullivan, senior economist at UBS Securities LLC in Stamford, Connecticut. ``Everything points to a much weaker consumer in the second quarter.''
This is one of the main reasons I focus a great deal of attention on gasoline prices. It's a price consumers have to pay, usually at least once a week. It's also a vital expense. Consumers will buy gas pretty-much regardless of the economic circumstances. When gas prices increase, consumers may cut back on spending on other goods and services.
The drops in consumer spending occurred in non-durable goods and services. These sectors dropped by 2.8 billion and 13.2 billion in chained 2000 dollars.
The inflation numbers were mixed. CBS reported:
The core personal consumption expenditure price index was flat in March, bringing the year-over-year increase down to 2.1% from 2.4% in February. Economists had expected a 0.1% gain in the core PCE.
The downward direction on inflation is sure to please Fed officials, but the level remains above the central bank's inflation ceiling of 2%.
Total inflation rose 0.4% in March and is up 2.4% over the past year.
For those of you who don't consumer food or energy, you saw no price increases. For the rest of us, we saw an increase especially in oil. The price at the pump in Houston Texas (where I live) is just below $3.00/gallon for premium. And it's only the end of April.
It's important to add the Fed has been forecasting lower inflation from lower growth for nearly a year now. Inflation has remained above the Fed's comfort zone for most of this time. While it has dropped a bit it's still higher than the Fed would like. Conversely, it's also important to point out inflation has not gotten out-of-hand. It's just been very stubbornly hanging on to the 2% - 2.5% range for some time.
I still don't see the Fed lowering rates because of this. They have firmly come out on the side of fighting inflation at the expense of economic growth.