WASHINGTON -- Consumer spending stalled in March while inflation slowed to below the Federal Reserve's target, showing the biggest part of the economy might take more time to gain momentum after a tepid start to the year.
Consumer spending was unchanged in March after also being flat in February and posting only a modest rise of 0.2 percent in January, the Commerce Department reported on Monday. For the January-March quarter, the sharp slowdown in consumer spending was a key reason growth, as measured by the gross domestic product, slowed to an annual rate of just 0.7 percent, the poorest performance in three years.
"Spending numbers were soft in February and March, but it's not necessarily the end of the world," since the figures follow a strong fourth quarter, said Scott Brown, chief economist at Raymond James Financial Inc. in St. Petersburg, Fla. "If we don't see a rebound in the numbers we get for April and May, that would be concerning. But the fundamentals are still sound for the consumer."
Economists believe growth will bounce back in the current April-June period, helped by continued strong job gains, rising wages and increased consumer confidence. But the poor first-quarter performance underscored the challenge President Donald Trump faces in lifting economic growth, which has lagged over the nearly eight years of this economic expansion, the slowest in the post-war period.
During his presidential campaign, Trump promised to double economic growth to 4 percent or better through a combination of tax cuts for individuals and businesses, deregulation and tougher enforcement of America's trade deals. But economists believe that Trump's growth goal will be hard to achieve given the headwinds the economy faces, with an aging workforce and scant gains in recent productivity.
The March spending report showed that incomes grew a modest 0.2 percent after stronger increases of 0.3 percent in February and 0.4 percent in January. The combination of weak spending growth and stronger income growth pushed the saving rate to 5.9 percent of after-tax income in March, up from 5.7 percent in February.
A key inflation gauge closely watched by the Fed showed a 0.2 percent decline in March while core inflation, which excludes food and energy, fell 0.1 percent, the first decline since September 2001. For the 12 months ending in March, core inflation has risen 1.6 percent, down from a 1.8 percent increase in February. That performance represented a small setback for the Fed's goal of getting inflation back to annual increases of 2 percent.
Construction spending slipped 0.2 percent in March to a seasonally adjusted $1.218 trillion, the Commerce Department reported Monday. In February, it rose 1.8 percent to a record high of $1.22 trillion. The result in March reflected drops in nonresidential construction and in the government sector, which offset a strong increase in residential activity.
Even with the slight decline, March activity was the second highest on record. The figure underscores the key role construction is playing in the overall economy, especially in home building. Demand for homes has been rising amid low unemployment and rising incomes, but many buyers have been frustrated by limited inventory and rising prices.
Residential construction climbed 1.2 percent to the highest level since June 2007, a period dating back to the housing boom of the past decade. In the first three months of the year, home construction grew at a 13.7 percent rate.
Nonresidential building fell 1.3 percent in March as spending on office buildings and the category that covers shopping centers both fell. Government activity dropped 0.9 percent with weakness in the state and local level.
American factories grew for the eighth-straight month in April but at a slower pace than in March.
The Institute for Supply Management, a trade group of purchasing managers, said Monday that its manufacturing index slipped to 54.8 from 57.2 in March and 57.7 in February. The April reading was weaker than economists expected and was the lowest since December's 54.5. But it was still solid: Anything above 50 signals that manufacturing is growing.
Bradley Holcomb, chairman of the institute's manufacturing survey committee, noted that every monthly reading in 2017 has been higher than any reading in 2016. "We're still in very, very good shape," he said.
New orders and hiring grew more slowly in April, but production and export orders sped up.
Sixteen of 18 manufacturing industries reported growth last month, led by makers of electrical equipment, appliances and components.
American factories have bounced back after being hurt in early 2016 and late 2015 by cutbacks in the energy industry, a reaction to low oil prices, and a strong dollar, which makes U.S. products costlier in foreign markets.
The overall U.S. economy grew at annual pace of just 0.7 percent from January through March as consumer spending grew at the slowest pace in more than seven years, the Commerce Department reported last week.
But the American job market has remained healthy. Employers are adding 178,000 jobs a month so far this year, and the unemployment rate has fallen to 4.5 percent, lowest in a decade. Manufacturers have added jobs for four straight months.
Information for this article was contributed by Martin Crutsinger and Paul Wiseman of The Associated Press and by Michelle Jamrisko of Bloomberg News.
Business on 05/02/2017