US consumer spending slowed in March, income rose

Associated Press Modified: April 30, 2012 at 6:30 pm •  Published: April 30, 2012

WASHINGTON (AP) — Americans increased their spending more slowly in March, a sign that scant pay increases may be causing consumers to become more cautious.

Their spending rose 0.3 percent last month, just one-third the increase in February.

Slow wage growth and softer consumer spending gains are the latest evidence that the economy might be weakening after a strong first two months.

Economists say a warm winter made the economy look better because it caused some activity that normally occurs in spring — from hiring to home sales — to occur in January and February. That made March's gain smaller.

A more troubling factor in the long run is that Americans are receiving little or no pay raises. "Real" income — income adjusted for inflation — has been growing too slowly to sustain healthy increases in consumer spending, many economists say.

After-tax income rose just 0.6 percent in the first three months of 2012 compared with a year earlier. That was the smallest gain in two years.

"Real incomes will need to grow at a faster rate to prevent consumption growth from slowing," said Paul Dales, senior U.S. economist at Capital Economics.

Before the Great Recession, a healthy gain in consumer spending was between 5 percent and 6 percent a year. March's increase was roughly half that pace.

And if income, adjusted for inflation, continued to grow at March's rate, the annual growth would be roughly 2.5 percent. While that's better than a decline, economists consider it a weak figure.

The U.S. economy depends on consumer spending for roughly 70 percent of activity. Many people have been increasing their spending by saving less.