Consumer spending flattens out in March as the economy softens

By Jeffry Bartash

Households spent more on services, less on goods

The numbers: Consumer spending was flat in March in a sign of a softening economy, but part of the weakness stemmed from households paying less for gas because of cheaper prices.

Analysts polled by the Wall Street Journal had forecast no change.

A surprisingly strong increase in consumer spending in the first quarter, most of it during an unusually warm January, helped keep the economy in expansion mode and stave off a widely predicted recession.

The increase in spending has been supported in part by rising wages. Incomes rose 0.3% in March, the government said Friday

Key details: Americans spent less last month on fuel and on new cars and trucks. Vehicle sales have been up and down for months, however, and that pattern is likely to continue.

Spending rose on housing, healthcare and utilities -- consumer staples whose costs have gone up.

The U.S. savings rate, meanwhile, increased for the sixth month in a row, to 5.1%. Savings had fallen late last year to the lowest level since 2005.

A higher savings rate partly reflects the willingness of banks to pay more for deposits after years of investors hardly earning anything. Yet it could also be a sign that Americans are preparing for a possible recession.

The personal-consumption-expenditures index, the Federal Reserve's preferred inflation barometer, barely rose in March. But a key measure of inflation remained stuck near 5%

Big picture: How consumers behave this year is likely to determine whether the U.S. slips into recession They account for 70% of everything that goes on in the economy.

A strong job market, rising wages and a higher savings rate suggest households have the means to spend enough to prolong a three-year expansion. But higher borrowing costs threaten to dampen consumer and business spending and depress U.S. growth.

Looking ahead: "Consumer spending stalled in March amid still-elevated underlying inflation, higher borrowing costs, and perhaps the first signs of tighter lending conditions," said senior economist Sal Guatieri at BMO Capital Markets.

Whether the economy slips into recession, he said, will depend on whether households keep spending.

Market reaction: The Dow Jones Industrial Average and S&P 500 rose slightly in Friday trades.

-Jeffry Bartash

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04-28-23 0955ET

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