Consumer Spending Jumps 0.9% in March, while core inflation keeps Fed at bay

According to a report from the U.S. Department of Commerce's Bureau of 
Economic Analysis, consumer spending increased $123.5 million last month. This
was the biggest monthly increase since August 2009 and a 1.5% increase
compared to March 2018's spending.

The surge follows a sharp decrease in December, when consumer spending fell 0.6%. It rose slightly in January and February by 0.3% and 0.1%, respectively.

Personal incomes also rose last month by $11.2 billion, a 0.1% increase from last month. March's income growth is slightly lower than February's 0.2%, but follows a 0.1% decline in January. However, people's personal savings declined from 7.3% in February to 6.5% in March, dropping from $1.16 trillion to $1.03 trillion.

On Friday, the Department of Commerce reported that the gross domestic product increased 3.2% in the first quarter of 2019, a jump that was helped by strong consumer spending. Additionally, the U.S. trade deficit dropped below expectations.

The weakness in income was concentrated in proprietors’ income. Wages and salaries rose 0.4% in March after a 0.3% gain in the prior month.

As a result of the boost in spending and low income, the savings rate fell to 6.5% in March, which is the smallest since November. The savings rate has averaged 6.9% since February 2013.

Headline inflation firmed in March, rising 0.2% after a 0.1% rise in February. This pushed up the year-on-year reading to 1.5% in March from 1.3% in February.

Big picture: The pickup in spending in March adds to the sense that the economy will remain solid in the second quarter after the 3.2% growth rate in the first quarter. Spending was weak in the first three months of the year but is starting the second quarter at a strong pace.

Core inflation is slightly above the 1.5% annual rate that is considered to be the bottom of the Fed’s comfort zone.

Muted inflation is expected to keep the Fed on the sidelines at their meeting this week. Fed officials have said they will be “patient” about further moves in interest rates. The market continues to think the next move by the central bank will be an interest rate cut.