"It's a relatively decent showing for spending, but consumers won't be able to sustain the current pace if income growth continues to disappoint"
- Millan Mulraine, an economist for TD Securities USA LLC
Consumers in the world's largest economy continue increase their spending even despite tax hikes and budget cuts, the Commerce Department said Monday. Household purchases, which account for around 70% of the economy, increased 0.2% after a 0.7% gain the prior month. At the same time, income increased 0.2% last month, following a much bigger gain of 1.1% in February. After-tax income also added 0.2%. The spending report eases fears about the recovery, as the economy lost some momentum towards the end of the first quarter, and Friday's data, which showed that gross domestic product grew 2.5% in the first three months of 2013, is adding to signs that measures done by the Fed are boosting growth.
"It's a relatively decent showing for spending, but consumers won't be able to sustain the current pace if income growth continues to disappoint," said Millan Mulraine, an economist for TD Securities USA LLC in New York, who accurately projected the gain in spending. "The weak inflation backdrop is likely to cause the Fed to at least keep purchasing" securities.
"People are going to pick up how low inflation is and how low it's going. That's what the Fed will be keeping an eye on given the weak demand environment," said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.
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