Moderation marks consumer spending

Associated Press

WASHINGTON — Consumers didn’t shop until they dropped, but they did spend modestly in March, helping to bolster the economic recovery.

The Commerce Department reported Monday that consumer spending — which accounts for two-thirds of all economic activity in the United States — rose 0.4 percent in March. That matched the growth in Americans’ incomes, which include wages, interest and government benefits.

While solid, March’s performance marked a moderation in spending and income growth from the month before. In February, Americans’ spending and incomes, which include wages, interest and government benefits, each rose by 0.6 percent.

"Consumers didn’t falter," said Richard Yamarone, economist with Argus Research Corp.

Higher energy prices and rising unemployment, which jumped to 5.7 percent in March, probably made people more cautious in their spending, economists said.

The 0.4 percent rise recorded for Americans’ spending and incomes in March was the smallest gain in three months.

How the recovery ultimately shapes up will depend on the behavior of consumers and a turnaround in business investment spending, which dropped during the recession, Federal Reserve Chairman Alan Greenspan has said.

Consumers kept on buying throughout the slump, preventing the economy from sinking deeper into recession last year. As a result, there could be less pent-up demand coming out of the downturn, making for a less than sizzling rebound, Greenspan has cautioned.

Businesses, meanwhile, won’t want to crank up investment until they are sure the recovery is here to stay and their profits, battered by the slump, get better, economists said.

On Wall Street, stocks slumped amid nervousness about the recovery. The Dow Jones industrial average closed down 90.85 points at 9,819.87, its weakest finish since Feb. 19, when it stood at 9,745.14.

The economy, breaking out of the doldrums, grew in the first quarter at a 5.8 percent annual rate, its strongest performance in more than two years. Consumer spending rose at a rate of 3.5 percent, contributing to first-quarter growth. But business investment in new equipment and plants was a source of weakness, falling at a 5.7 percent rate.

President Bush, who credits his $1.35 trillion tax cut last year with helping the economic comeback, wants to make sure the recovery stays on firm footing.

"I know the numbers are beginning to look better," Bush said Monday at a fund-raiser. "We’re practical people that’s got to keep asking the question, ‘How do we keep America growing and how do we keep the job base growing?’ "

Economists believe economic growth has slowed to a rate of around 3 percent to 3.5 percent in the current quarter, a still respectable pace.

Monday’s report also showed that consumer spending on durables, such as cars and appliances, rose 0.5 percent in March, down from a 1.4 percent gain.

"The modest pullback … is one positive sign that households are still on board," said economist Joel Naroff of Naroff Economic Advisors. "The consumer will be the rock upon which the economic growth is built."