Consumer Spending Soars Most in Nearly a Decade, Inflation Stays Low

April 29, 2019 Updated: April 29, 2019

Americans reached deeper into their pockets in March, spending nearly $1.2 trillion on consumer goods and services. That’s up nearly 0.9 percent from February—the biggest increase since August 2009.

The increase was primarily driven by car purchases, where spending on vehicles and parts increased more than 4.8 percent, the most since March 2018. Among services, health care expenditures contributed the most to the hike, the Commerce Department’s Bureau of Economic Analysis reported on April 29.

The data runs counter to predictions by some economists extrapolating on a consumer spending drop in December 2018 and relatively weak growth in January. The February data, also showing weak growth, was released together with the March data due to delays caused by the partial government shutdown in December and January.

When adjusted for inflation, consumer spending increased 0.7 percent in March. This so-called real consumer spending was unchanged in February.

Inflation

Inflation was benign, with personal consumption expenditures (PCE) price index excluding the volatile food and energy components unchanged in March after edging up 0.1 percent in February. That lowered the year-on-year increase in the so-called core PCE price index to 1.6 percent, the smallest increase since January 2018 and down from 1.7 percent in February.

The core PCE index is the Federal Reserve’s preferred inflation measure and its low growth is a reason for Fed to decrease interest rates, said Larry Kudlow, director of Trump’s National Economic Council, on April 26.

Fed officials are scheduled to meet on April 30 and May 1 to assess the economy and deliberate on the future course of monetary policy. The central bank in March dropped forecasts for any interest rate increases this year, halting a three-year tightening campaign. The Fed raised borrowing costs four times in 2018.

Economy Up

The economy-at-large grew at a 3.2 percent annual rate in the first quarter of 2019, cheered on by the Trump administration.

“This blockbuster GDP report shows that President Donald J. Trump’s policies are unleashing the vitality of the American economy, fulfilling the President’s promise for 3 percent economic growth and benefiting American workers in the form of better jobs and higher wages,” said Commerce Secretary Wilbur Ross in an April 26 release. “The Trump economy has repeatedly defied the skeptics who predicted an economic downturn and has restored America’s position in the world as a consistent source of economic growth.”

The Commerce Department highlighted the greater-than-expected decrease in the U.S. trade deficit in January and February, which contributed to the GDP growth.

Trump Economy

Many economic indicators have broken records under Trump, especially in the past year, boosted by the administration’s tax cut package and deregulation.

The unemployment rate in particular has been hovering near half-century lows for a year already, standing at 3.8 percent in March.

More than 4.4 million Americans have stopped using food stamps in the first 25 months since Trump took office (pdf), compared with a less than 3.5 million drop during the previous 25 months under his predecessor, President Barack Obama.

Small business optimism inched up in March and has remained strong throughout Trump’s presidency despite weakening between November and January.

“The labor market indicators improved, capital spending plans held steady, and the outlook for expansion and real sales gained ground as did reports of rising earnings,” reported the National Federation of Independent Business (NFIB), which creates the optimism index based on surveys of its members (pdf).

The weakest point of the index was on inventories, where “stocks were viewed as too large,” the report said.

“Owners are growing their businesses and expect that they can sell more if they can produce more with additional employees,” said NFIB Chief Economist Bill Dunkelberg in a release. “Investment spending has been solid for the past two years and owners are choosing to invest in their workforce as well by creating new jobs and raising wages.”

Reuters contributed to this report.

Follow Petr on Twitter: @petrsvab
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