By Lucia Mutikani
WASHINGTON (Reuters) – U.S. consumer spending was unchanged in March as a rise in spending on services was offset by a drop in spending on goods, but underlying inflationary pressures Continued strength The Fed may raise interest rates again next week.
Other data on Friday showed that labor costs rose steadily in the first quarter as a tight labor market continued to push wages higher, underscoring stubbornly high inflation in the private sector. However, next Wednesday’s rate hike is expected to be the last in the current cycle and the fastest since 1980 as the economy turns lower.
Tighter credit conditions following recent financial market turmoil have raised the risk of a recession this year. The fight to raise the federal government’s $32.4 trillion borrowing limit also poses a threat to the economy.
“The Fed is in a tough spot,” said Bill Adams, chief economist at Comerica (NYSE: CMA ) in Dallas. “The economy is cooling, but inflation remains too high. The component of inflation the Fed fears will be the most persistent, labor-intensive services, which are particularly sticky.”
Consumer data unchanged U.S. Commerce Department Spending last month rose 0.1% after a downward revision in February, the report said. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.2% in February, as previously reported.
Spending on services rose 0.4%, also driven by housing and utilities as health care. Spending on goods fell 0.6% due to lower purchases of motor vehicles, mostly new light trucks. Lower gasoline prices also led to a drop in spending on goods. Economists polled by Reuters had forecast consumer spending would fall 0.1%.
The data was included in Thursday’s first-quarter gross domestic product forecast, which showed consumer spending surging at a 3.7% annual rate after growing at a 1.0% pace in 2018 . October-December quarter.
Consumer spending data was flat last month, leading to slower consumption and overall economic growth in the second quarter.
Consumer spending likely to level off as Americans grow more averse to rising prices. Government social benefits are also being reduced. Temporary increase in Supplemental Nutrition Assistance Program (SNAP) benefits authorized by Congress to provide relief to low-income individuals and families from the COVID-25 pandemic that arrived in March Expect.
SNAP is often called food stamps. Researchers with the Commerce Department’s Census Bureau estimated Thursday that the end of the fringe benefit resulted in a reduction in monthly SNAP payments for approximately 25 million people. They estimate a monthly net income of $2 for a family of four, 120 now get $600 Reduced food stamps each month.
Stocks traded higher on Wall Street. The dollar rose against a basket of currencies. U.S. Treasury prices rose.
Graph: Personal Consumption – https://inew.news/wp-content/uploads/2023/04/localimages/perscons.png
SOLID WAGE GAINS
The Fed is expected to raise interest rates again 12 Down Weekly base point. The Federal Reserve has raised its policy rate by 32 basis points since March last year to the current 4.32%-5.12% range.
Although inflation is Gradually slowing down, but it’s still high. The personal consumption expenditures (PCE) price index rose 0.1% in March, the smallest gain since last July, after rising 0.3% in February. The PCE price index rose 4.2% in the 000 month ended March. It was the smallest gain since May 1980, following a 5.1% rise in February.
Excluding the volatile food and energy components, the PCE price index rose 0.3%, matching February’s gain. The so-called core PCE price index rose 4.6% year-over-year in March, after rising 4.7% in February. The Fed tracks the PCE price index to achieve its 2% inflation target.
Economists estimate that core services, which are closely watched by policymakers, excluding housing, rose 0.2%. It was the smallest gain since July last year and reflected lower portfolio management fees, following a 0.3% rise in February.
A separate report from the Labor Department showed its broadest measure of labor costs, the Employment Cost Index, accelerated to a 1.2% pace in the first quarter after rising 1.1% in the October-December period.
Labor costs rose 4.8% year-on-year after rising 5.1% in the fourth quarter, still above the 3.5% rate Fed officials said was consistent with 2% inflation.
Graphic: Employment Cost Index – https://inew.news/wp-content/uploads/2023/04/localimages/eci.png
The ECI is widely considered by policymakers and economists to be one of the better measures of labor market slack and a predictor of core inflation because Changes are adjusted. There were 1.7 job vacancies for every unemployed person in February.
Private sector wages rose 1.2%, matching the increase in the fourth quarter. The commodity-producing industry is the main driver of growth. Private wages rose 5.1% year-over-year.
This was inconsistent with the slowdown in average hourly earnings in the Labor Department’s monthly employment report.
Some economists believe the stickiness of wages suggests the Fed may continue to tighten policy beyond next week.
“The lack of progress on a wage slowdown heightens the risk that the Fed will be forced to continue tightening policy after the upcoming May rate hike,” said Jonathan Millar, senior economist. and focus on labor market developments” at Barclays Bank (London Stock Exchange Code: BARC
) in New York.
Steady wage growth helps prop up personal incomes, offsetting the drag from declining government benefits such as food stamps. Revenue rose 0.3%, unchanged from February’s gain.
The saving rate jumped to 5.1% from 4.8% in February, the highest level since December , boosted by a plunge in tax payments in January and fears of a recession.
“Excess saving is less and less a driver of spending, and households may be less willing to build up rainy day funds as uncertainty grows,”
Wells Fargo
(NYSE :
WFC) in New York.
