He US consumer spending it was unchanged in March and underlying inflationary pressures remained strong, which could prompt the Federal Reserve to raise interest rates again next month.
The Commerce Department reported Friday that consumer spending was unchanged last month, after a downwardly revised 0.1% increase in February.
Consumer spending, which accounts for more than two-thirds of US economic activity, had grown 0.2% in February. Economists polled by Reuters had forecast a 0.1% decline in March.
The data was included in the first quarter Gross Domestic Product advance report released on Thursday, which showed a 3.2% rise in consumer spending in February.
Consumer spending grew at an annualized rate of 3.7% in the period, after having increased at a rate of 1.0% in the October-December quarter.
The economy as a whole grew at a rate of 1.1%, as the acceleration in consumer spending was offset by the liquidation of inventories by companies in anticipation of lower demand at the end of the year. The economy grew at a rate of 2.6% in the fourth quarter.
Last month’s flat reading on spending puts consumption on a path of lower growth in the second quarter.
That likely reflects Americans’ aversion to rising prices, as well as the expiration of a temporary benefit increase from Supplemental Nutrition Assistance Program (SNAP) authorized by Congress to cushion low-income individuals and families from the hardship of the Covid-19 pandemic.
SNAP is commonly known as food stamps. Researchers with the Commerce Department’s Census Bureau estimated Thursday that the end of extra benefits had caused about 32 million people to receive lower monthly SNAP payments. They calculated that a household of four with a monthly net income of $2,000 now received $600 less in food stamps each month.
The economy is facing several headwinds, including rising interest rates from the Federal Reserve’s fight against inflation and tightening credit conditions, which could curb consumer and business spending. The stagnation of the increase in the debt limit of the federal government, which amounts to 31.4 trillion dollars, also poses a threat.
The Federal Reserve is expected to raise rates another 25 basis points next week, which could mark the last hike in the central bank’s tightening cycle, the fastest since the 1980s. Since March of last year, the Fed has increased rates by 475 basis points, from near zero to the current range of 4.75%-5.00 percent.
Although inflation remains high, it is gradually slowing down. He Personal Consumption Expenditure (PCE) Price Index rose 0.1% in March, after rising 0.3% in February. In the 12 months to March, the PCE price index rose 4.2% after rising 5.1% in February.
Excluding the volatile food and energy components, the PCE price index rose 0.3% after rising 0.3% in February. The so-called core PCE price index gained 4.6% year-on-year in March, after rising 4.7% in February. The Fed tracks PCE price indices to reach its 2 percent inflation target.
