Consumers boost spending

Associated Press photo by NAM Y. HUH -- An employee straightens merchandise in March at an Abercrombie & Fitch store in Chicago. The government reported a rise in consumer spending last month, though retail was down. Show caption
Associated Press photo by NAM Y. HUH -- An employee straightens merchandise in March at an Abercrombie & Fitch store in Chicago. The government reported a rise in consumer spending last month, though retail was down.

Americans kept increasing their spending in March and their income grew, further indication that consumers are shaking off higher taxes.

The Commerce Department said Monday that consumer spending rose 0.2 percent in March from February. That followed a 0.7 percent jump in February and a 0.3 percent gain in January.

Income increased 0.2 percent last month, following a gain of 1.1 percent in February. After-tax income also rose 0.2 percent.

Higher income has helped offset an increase in Social Security taxes that took effect on Jan. 1. On Friday, the government said consumer spending rose from January through March at the fastest pace in more than two years.

“The consumer is doing reasonably well,” Joseph LaVorgna, an economist at Deutsche Bank, said in a note to clients.

In a separate report, the National Association of Realtors said Monday that its seasonally adjusted index for pending home sales rose 1.5 percent to 105.7. That’s the highest since April 2010, when a homebuyer’s tax credit boosted sales. It’s also above February’s reading of 104.1.

There is generally a one- to two-month lag between a signed contract and a completed sale. Contract signings rose in the South, West and Midwest, and were unchanged in the Northeast.

Steady job gains and near-record low mortgage rates have helped drive home sales up the past year. Signed contracts are 7 percent higher than the same month a year earlier.

But completed sales have slowed in recent months — and dipped in March — because of a limited supply of available homes on the market. The number of homes for sale has fallen nearly 17 percent in the past year to 1.93 million, the Realtors’ group said last week. At the current sales pace, that supply would be exhausted in 4.7 months, below the six months that is typical in healthier markets.

Consumer spending on services drove the March increase. That was partly due to an unseasonably cold March, which required Americans to pay more to heat their homes.

Higher spending on utilities does not signal consumer confidence the way purchases on household goods, such as new appliances or furniture, typically do. And other reports suggest consumers may be starting to feel the impact of the tax increase. Sales at retail stores and restaurants fell in March by the most in nine months.

Consumer spending accounts for about 70 percent of economic activity.

Other trends may offset some of the impact of the taxes this year. Consumers have cut their debts, and rising home values and stock prices have increased household wealth. In addition, gasoline has become cheaper.