Income continues to grow, but spending slows in March; Higher food and gasoline prices push up inflation rate

Personal Spending slowed below Personal Income in March. Consumer spending has been the support of the economy as housing and business capital expenditures have slowed, but it looks like higher gas prices and the weak housing market may be encouraging more savings. Adjusted for inflation, spending fell the most since September 2005, at -.2% MoM.

Personal income grew .7% MoM in March(consensus +.6% MoM), the same as the revised higher level for February of +.7% MoM. Personal spending slowed to +.3% MoM (consensus +.5% MoM), and only half the rate of the revised higher +.7% MoM increase in February. Slowing spending will keep GDP growth weak in the second quarter.

The savings rate improved to -.8% in March from -1.2% in February.

Over the past year, personal income has risen 5.7% YoY, with disposable income (after taxes) rising +5.3% YoY. Personal spending has increased 5.5% YoY. The savings rate has fallen -.4% since March of 2006. Inflation adjusted, personal spending rose +3.1% YoY, while disposable income rose +2.9% YoY.

Headline inflation continues to rise, with the PCE deflator rising to +2.4% YoY from +1.9% YoY only two months ago. Excluding food and energy, inflation has fallen to +2.1% YoY in March from +2.4% YoY in February. On a monthly basis, core inflation was unchanged in March from February, but total inflation rose +.4% MoM, due to higher gasoline and food expenses.