WASHINGTON – US consumer spending was unchanged in March as an increase in outlays on services was offset by a decline in goods, but persistent strength in underlying inflation pressures could see the Federal Reserve raising interest rates again next week.
Stubbornly high inflation was underscored by other data on Friday showing labor costs increasing solidly in the first quarter as a tight labor market continued to drive wage gains in the private sector. With the economy, however, shifting to lower gear, the anticipated rate hike next Wednesday could be the last in the current cycle, which is the fastest since the 1980s.
Tighter credit conditions following recent financial market turmoil have added to the risks of a recession this year. A fight to raise the federal government’s $31.4 trillion borrowing cap also poses a threat to the economy.
“The Fed is in a tough spot,” said Bill Adams, chief economist at Comerica Bank in Dallas.
“The economy is cooling, but inflation is still too high. The components of inflation that the Fed worries will be most persistent, labor-intensive services, are especially sticky.”
The unchanged reading in consumer spending last month, reported by the Commerce Department, followed a downwardly revised 0.1 percent gain in February. Consumer spending, which accounts for more than two-thirds of US economic activity, was previously reported to have increased 0.2 percent in February.
Spending on services rose 0.4 percent, driven by housing and utilities as well as healthcare. Goods outlays fell 0.6 percent as purchases of motor vehicles, mostly new light trucks, decreased. Lower gasoline prices also contributed to the decline in goods spending.
Economists polled by Reuters had forecast consumer spending dipping 0.1 percent. — Reuters
