WASHINGTON (MarketWatch) - Boosted by spending on autos and other durable goods, real U.S. consumer spending increased 0.5% to a record high in March, at last surpassing the pre-recession peak set in November 2007, the Commerce Department estimated Monday.
After-tax, inflation-adjusted incomes increased 0.2% in the month, with transfer payments such as unemployment benefits accounting for much of the gain. The tepid income gains should hamper the economic recovery, economists say.
With spending growing much faster than incomes in March, the personal savings rate fell to 2.7%, the lowest since September 2008. The savings rate had peaked at 6.4% last May when stimulus payments hit consumers' bank balances.
The report is not likely to have much impact on financial markets, as it merely provides monthly details already reported on a quarterly basis on Friday in the gross domestic product report. For the first quarter, real consumer spending rose at the fastest rate in three years, while real disposable incomes were flat.
In the monthly report, in current dollars (not adjusted for price changes), consumer spending rose 0.6% to a seasonally adjusted annual rate of $10.4 trillion in March. Incomes rose 0.3% to a seasonally adjusted annual rate of $11.1 trillion. Both figures matched expectations of economists surveyed by MarketWatch.
Income growth was led by a 1.1% gain in transfers from the government. Incomes from wages and salaries increased 0.2%. Incomes from assets fell 0.5% for the third straight month.
Inflation remained muted, the government estimated. The personal consumption expenditure price index increased 0.1% in March. Core inflation - which excludes food and energy - also rose 0.1%. Overall inflation has increased 2% in the past 12 months, while core inflation is up 1.3%.
The low inflation rate, combined with a still-weak economy, will allow the Federal Reserve to keep its target interest rate extremely low for a while. The target rate is now 0% to 0.25%.
Details
Real spending on durable goods (including autos) rose 3.4% in March after a 1% gain in February. It was the largest percentage increase since August, when the government's cash-for-clunkers program encouraging auto sales.
Real spending on nondurable goods rose 0.4% after a 0.7% gain in February. Real spending on services was flat after a 0.4% gain in February.
Rental income rose 0.7%. Income from small businesses rose 0.3%, the first gain since December.
