April 29, 2005
By Tim Ahmann
Yahoo News
WASHINGTON (Reuters) - U.S. consumer spending rose 0.6 percent in March but inflation ate up most of the gain, while first-quarter worker compensation posted the smallest increase in six years, the government said on Friday.
The Commerce Department's report on consumer spending showed inflation quickened in March, but the pickup was in line with expectations in financial markets.
U.S. stock futures and prices for U.S. government bonds rose a bit after the data was released, while the value of the dollar was little changed.
Economists said the data did little to change the outlook for interest rates. Federal Reserve officials gather on Tuesday and are widely expected to bump benchmark overnight rates up by a quarter-percentage point to 3 percent.
"This should be a nonevent as far as the Fed is concerned. They should raise rates at the next two meetings and then they will hold," said Robert MacIntosh, chief economist at Eaton Vance Management in Boston.
Wall Street economists had expected a March spending rise of just 0.4 percent, but the data released on Friday had been incorporated into a report on economic growth released on Thursday and carried few surprises.
The PCE price index, one of the Fed's favorite measures of inflation, rose 0.5 percent in March after climbing 0.3 percent in February, further evidence of price pressures in the U.S. economy.
Stripping out volatile food and energy prices, the core PCE index rose 0.3 percent, matching Wall Street expectations and topping its 0.2 percent February gain. Year over year, the price index for personal consumption was up 2.4 percent versus an increase of 2.2 percent in February.
Taking the quickened pace of inflation into account, personal spending edged up just 0.1 percent last month.
The report showed personal income gained 0.5 percent in March, but was flat when adjusted for inflation and taxes.
Purchases of durable goods -- costly items meant to last three years or more -- rose 2.2 percent in March and accounted for the bulk of the pickup in consumer spending.
The U.S. personal saving rate dipped to 0.4 percent in March from February's 0.5 percent to stand at its lowest level since October 2001.
BENEFIT COSTS SLOW
Separately, the Labor Department said U.S. employment costs rose 0.7 percent in the first quarter, the smallest gain in six years, as wages moved up modestly and benefit cost growth slowed.
The rise in the Employment Cost Index, a broad gauge of what employers pay in wages and benefits, marked a slight slowdown after a 0.8 percent advance in the final three months of last year and came in below the 1 percent expected on Wall Street.
Salaries and wages increased 0.6 percent in the January-March period. The increase was just a touch above the fourth-quarter gain and kept the 12-month rise steady at 2.4 percent -- the smallest advance since the series began in the early 1980s -- for a third straight quarter.
Benefit costs rose 1.2 percent from the prior quarter, the smallest gain in three years. Over the last 12 months, benefit costs have risen 5.9 percent, the smallest 12-month advance in just over two years. The department noted health costs were a major contributing factor to the rise in overall compensation. (Additional reporting by Laura MacInnis)
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