Savings Rate Up in March; Growth in Spending Eases

The government said Thursday that consumer spending rose a slim 0.2% in March, its weakest performance in six months and a sign, analysts said, that consumers are contributing to an economic slowdown.

The sluggish spending came even as personal income rose a strong 0.8%. That combination boosted the personal savings rate to its highest level in nearly four years, the Commerce Department reported.

Analysts said Thursday’s reports provided new confirmation that economic growth is slowing and that consumers are helping apply the brakes.

“It is consistent with this view of the wary consumer, of consumers not being sure that their paychecks are going to stretch to cover the rising costs of things in their budgets,” said economist Cynthia Latta of Data Resources Inc. in Lexington, Mass.

Personal income in March rose sharply to a seasonally adjusted annual rate of $4.35 trillion after advances of 1% in February and 1.7% in January.

Personal spending, meanwhile, edged up to a seasonally adjusted annual rate of $3.39 trillion after gains of 0.5% in February and 0.7% in January. Last month’s 0.2% advance was the weakest performance since spending held steady in September.

With the advances in income consistently outstripping the gains in spending, the personal savings rate has been edging up and in March hit 6.3%, the highest level since it was at 6.4% in May, 1985.

The savings rate--savings as a percentage of after-tax income--has been on the increase since it hit a 40-year low of 3.2% in 1987. Last year, the savings rate was 4.2%. In January, it was 5.1%; in February, 5.8%.

Analysts cautioned, however, that the savings rate has been inflated in recent months by strong farm income and slower sales of autos and other expensive items that have a disproportionate effect on the rate.

The March increase in personal income was due partly to special factors, including profit-sharing payments to auto workers, a big increase in retroactive Social Security benefits and farm subsidies.

Even excluding those factors, however, income rose a solid 0.6%.

The weakness in spending was concentrated in purchases of durable goods, “big ticket” items expected to last at least three years. Spending on durables declined 1.5% last month, largely due to slow auto sales.

Purchases of non-durable goods, meanwhile, rose 0.4%; spending on services advanced 0.5%.

With consumer spending accounting for two-thirds of the nation’s economic activity, any slowing trend there can be widely felt.

However, economist Michael Evans, head of a Washington consulting firm, said that so far in the slowdown, “consumers are contributing a little bit . . . but they’re not the main reason.”

Added Sandra Shaber of the Futures Group in Washington:

“A major slowdown in consumer spending can tip the economy into a recession, but I don’t think it’s going to be consumers who will do that.”

Many analysts expect smaller advances in exports and business investment to play a big role in slowing the economy this year.

The Federal Reserve for a year has been pushing up interest rates in an effort to relieve inflationary pressures by restraining economic growth.

More information about inflation became available Thursday when the Labor Department reported that the prices Americans paid for imported goods rose 1.7% in the first quarter while prices of U.S. goods sold overseas advanced 1.4%.

Data Resources economist Nigel Gault said the increases are “consistent with the fact that the industrialized nations as a whole are getting close to full capacity” at their factories, a condition that can create shortages and bottlenecks that drive up prices.

Gault said it will take some time “for the tightening of monetary policy in the U.S. and in other industrialized countries to slow down the economies enough to have a significant impact on the inflation rate.”