WASHINGTON - Americans kept increasing their spending in March and their incomes grew, further indication that consumers are shaking off higher taxes.
The Commerce Department said Monday that consumer spending rose 0.2 percent in March from February, following a 0.7 percent jump in February.
Incomes increased 0.2 percent last month, following a gain of 1.1 percent in February. After-tax incomes also rose 0.2 percent.
"The consumer is doing reasonably well," Joseph LaVorgna, an economist at Deutsche Bank, said in a note to clients.
A 2 percentage point tax increase has reduced tax-home pay for nearly all Americans. A person earning $50,000 a year will have about $1,000 less to spend this year. A household with two highly paid workers will have up to $4,500 less.
That may slow consumer spending and economic growth in the April-June quarter. But other trends may offset some of the impact of the taxes this year. Consumers have cut their debts, and rising home values and stock prices have increased household wealth. In addition, gasoline has become cheaper. The national average price for a gallon of gas has fallen by 29 cents since Feb. 27 to $3.50. A decline in gas prices leaves consumers with more money to spend on other things.
Consumer spending was actually stronger in March after adjusting for the drop in gas prices. Inflation-adjusted spending rose at a slightly faster 0.3 percent pace. That matched February's inflation-adjusted rate and was higher than January's.
Steady hiring has helped consumers maintain spending, though job gains slowed in March. Employers added just 88,000 jobs last month, much lower than the average of 220,000 per month in the preceding four months. Economists forecast that the slowdown was temporary. They predict job gains in April rebounded to 160,000, although the unemployment rate is expected to stay at 7.6 percent. The Labor Department will issue the April employment report on Friday.
On Friday, the Commerce Department said the economy expanded 2.5 percent at an annual rate in the January-March quarter. That was much better than the 0.4 percent growth recorded in the fourth quarter. Growth was buoyed by the large increase in consumer spending.
Pending home sales surge to 3-year high
The number of Americans who signed contracts to buy homes rose in March to the highest level in three years, pointing to higher sales this spring. The National Association of Realtors said Monday that its seasonally adjusted index for pending home sales rose 1.5 percent to 105.7, the highest since April 2010. There is generally a one- to two-month lag between a signed contract and a completed sale. Contract signings rose in the South, West and Midwest, and were unchanged in the Northeast.