Solid gains in economy shown

Jeannine Aversa

Monday, April 29, 2002 | 9:48 a.m.

WASHINGTON -- Consumers kept their pocketbooks and wallets open in March and increased their spending by 0.4 percent. Incomes rose by the same amount, the government said today.

The solid gains -- on target with many analysts' expectations -- indicated consumers, the lifeblood of the economy, were in a position to spend to bolster the economic recovery and they did.

Consumers, whose spending accounts for two-thirds of all economic activity in the United States, bought throughout the slump, preventing the economy from sinking deeper into recession last year.

As a result, there could be less pent-up demand coming out of the downturn, making for a less than sizzling rebound, Federal Reserve Chairman Alan Greenspan has said.

How the recovery ultimately shapes up will depend on the behavior of consumers and a turnaround in business investment spending, which dropped during the recession, economists say.

While solid, March's performance marked a moderation in spending and income growth from the month before. In February, Americans' spending and incomes -- which include wages, interest and government benefits -- each rose by 0.6 percent.

Higher energy prices and rising unemployment -- which jumped to 5.7 percent in March -- probably made people more cautious in their spending.

Spending on durables -- such as cars and appliances -- rose 0.5 percent in March, down from a 1.4 percent gain. For nondurable goods, such as food and clothing, spending edged up 0.2 percent, compared with a 0.4 percent increase the month before. Spending on services rose 0.5 percent, slightly less than the 0.6 percent increase in February.

The government report also showed that disposable incomes -- income after taxes -- went up 0.5 percent in March, after a 0.7 percent gain.

Because disposable incomes increased more quickly than spending in March, the nation's personal savings rate, which is savings as a percentage of after-tax income, was lifted to 2.2 percent, the highest since September.

In an effort to rescue the economy from the grips of recession, the Federal Reserve slashed short-term interest rates 11 times last year. Citing signs of a rebound, the Fed opted to leave rates -- now at 40-year low -- unchanged in January and March. Many economists believe the central bank will hold rates steady at its May 7 meeting and possibly into the summer.