By Conor Dougherty and Jeff Bater
Consumers' paychecks continued to inch up in March, but rising gas and food prices have individuals spending more on staples.
Americans' incomes grew 0.5% in March—and are up 5.0% from a year ago—as the economy has recovered and started adding jobs at a faster pace, the Commerce Department said Friday. They also had more to spend: Their after-tax income increased 0.6% from a month earlier.
The saving rate—the amount consumers have left after taxes and monthly spending—held steady at 5.5% in March. The saving rate has been in a steady range of 5.5% to 6.0% for most of the past year, far higher than the mid-2.0% range where it sat before the recession.
Friday's data come on the heels of a report Thursday that showed U.S. gross domestic product growth slowed to a 1.8% pace in the first quarter of 2011 from 3.1% in the previous three months, in part because consumer spending slowed.
While the lower growth and spending mark a setback for the recovery, many economists say they believe the slowdown will prove temporary. The labor market is improving while companies continue to spend and invest.
Prices for food and gasoline have gone up sharply in recent months, but those prices tend to be volatile and many economists say the increases will moderate soon.
Futures markets are predicting gas prices will come down in the next few months, and Friday's income data showed prices excluding food and gas—a gauge of underlying inflation—increased just 0.1% in March, and 0.9% from a year ago.
Separately, consumer sentiment rebounded slightly at the end of April, according to a report released Friday, while inflation expectations remained steady. The Thomson Reuters/University of Michigan consumer-sentiment index increased to 69.8 at the end of April from a preliminary April reading of 69.6 and 67.5 at the end of March.
