Consumer Spending Stagnates As Prices Rise

Consumer spending barely budged in March, the fourth lackluster month as Americans grappled with higher food and energy prices amid an economic downturn.

Spending grew 0.1 percent in March when adjusted for inflation, after staying flat in February and recording a slight rise in January, the Commerce Department reported Thursday. At the end of last year, spending actually declined.

“What you’ve got here is a very dramatic consumer slowdown,” said Ian Shepherdson, chief United States economist at High Frequency Economics in London. “It’s much more severe than anything we saw in 2001,” he added, referring to the last recession.

Unadjusted consumer spending rose 0.4 percent in March, more than expected, but that figure does not take into account the immense price run-up in food and gasoline.

Of the Americans who did spend, most of it went toward services, including necessities like haircuts and medical care. Sales of big-ticket items like washing machines and television sets declined in March, the report said, a signal that Americans were putting off large-scale purchases, which are commonly bought on credit. In the first quarter, sales of those goods plummeted 6.1 percent.

“It’s very disconcerting,” Mr. Shepherdson said. “About half of all consumption is not really discretionary, it’s things like food, energy, medical costs, over which people have very little control in the short run.”

The report illustrated why Americans had cut back on major purchases: Workers’ wages continued to grow at an anemic pace in March, even as higher prices for food and gasoline took more out of their pocketbooks.

Income rose 0.3 percent in March, down from an increase of 0.5 percent in February. After taxes, and adjusted for inflation, Americans’ income was flat for March. Americans also saved less; the savings rate slipped to 0.2 percent from 0.4 percent in February.

Inflation, already at elevated levels, accelerated in March, the report said, with costs to consumers now 3.2 percent higher than a year ago. On a monthly basis, costs were up 0.3 percent in March after rising 0.1 percent in February.

The bleak report does not bode well for the economy’s future prospects, economists said. Spending is the primary engine of the economy, accounting for more than two-thirds of gross domestic product. If these pistons start to slow, the system is likely to sputter to a halt. An earlier report on the economy’s performance in the first quarter, released Wednesday by the Commerce Department, showed consumption at its weakest point since the recession of 2001.

Spending is expected to tick up slightly after the government mails out tax rebates in an effort to stimulate the economy. But economists said the coming rebates were unlikely to prop up sales for long.

“The worry is that after that relief fades away, the consumer will still be faced with the same underlying problems,” said Nigel Gault, chief United States economist at Global Insight, a forecasting firm, in a note. “Any burst of spending based on the stimulus payments is likely to prove short-lived.”

Thursday’s report also provided little comfort to the Federal Reserve, which is trying to avoid a recession while keeping price pressures in check. The Fed, in determining inflation dangers, is said to keep close track of a figure in the report that measures prices of goods that exclude energy and food products, which are considered volatile from month to month. This figure, known as the core personal consumption expenditures price deflator, ticked up to 2.1 percent in March from 2 percent in February, slightly above the Fed’s presumed “comfort zone.”

Separate reports on Thursday revealed problems in the construction and manufacturing sectors, which have been battered in the last year by the housing slump. Residential construction fell sharply in March, shrinking 4.6 percent as builders cut back on groundbreakings or stopped work on projects. Over all, spending on construction declined 1.1 percent in March after rising 0.4 percent in February, the Commerce Department said.

Meanwhile, a bellwether gauge of manufacturing activity stayed flat in April as companies laid off workers. The Institute of Supply Management’s index was unchanged at 48.6 last month. Inventories and export orders rose, but new orders stagnated.

Wall Street’s focus turns now to the Labor Department’s report on unemployment in April, which will be released Friday. Economists predict that employers shed up to 100,000 jobs last month, a forecast bolstered by a report on Thursday that claims for unemployment benefits rose by 35,000, to 380,000 last week. Economists had forecast an increase of 18,000.

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