April 30, 2018 12:15 PM, EDT

March Consumer Spending Picks Up; Inflation Hits Fed Goal

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U.S. consumer spending picked up in March while the Federal Reserve’s preferred inflation gauge hit the central bank’s 2% target for the first time in a year, reinforcing the outlook for further interest-rate hikes.

Purchases rose 0.4% from the prior month, matching estimates, after being little changed in February, Commerce Department figures showed April 30.

The price gauge linked to consumption rose 2% from a year earlier after 1.7% in February; excluding food and energy, which officials see as a better gauge of underlying trends, it was up 1.9%.

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The rise in consumer spending, which accounts for 70% of the economy, gives the economy some momentum at the end of an otherwise weak quarter and provides some support for forecasts that consumption will accelerate this quarter as tax cuts and a gradual pickup in wages filter into Americans’ bank accounts and sentiment. At the same time, the income figures were slightly below forecasts, reflecting the weakest gain in wages and salaries since October.

Even with the Fed’s preferred price measure hitting its target, central bankers are likely to react with restraint and stick to their plan for gradual interest-rate hikes, though the trend could nudge them toward four increases this year.

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Policymakers are expected to leave borrowing costs unchanged at their two-day meeting concluding May 2, then raise rates in June for the second time this year.

Incomes rose 0.3% from the prior month, the same as February and less than the projected 0.4% gain; adjusted for taxes and inflation, disposable income was up 0.2% after a 0.1% rise. Wages and salaries advanced 0.2%, the smallest gain since October, after a 0.4% increase in February.

GDP Report

The data in the April 30 report were largely telegraphed in last week’s figures on first-quarter gross domestic product, which showed consumers pulled back on their spending after a robust end to 2017.

The tax-cut legislation signed in December, and one-time bonuses announced by several companies in its wake, are helping to supplement workers’ pocketbooks. Wages gave a hint of accelerating last week in Labor Department data on the employment cost index, while monthly data due this May 4 are projected to show hiring rebounded in April.

First-quarter GDP grew at a 2.3% annualized rate, GDP data showed April 27, faster than the forecast for a reading of 2% but weaker than the 2.9% in the fourth quarter. Consumer spending advanced 1.1% after 4% in the fourth quarter.

Other Details

• Saving rate fell to 3.1% in March from 3.3%.

• Durable goods spending, adjusted for inflation, rose 1.1% after a 0.1% decrease in the prior month; nondurable goods rose 0.3% after a 0.4% decline; March goods spending reflected purchases of recreational goods and vehicles.

• Household outlays on services, adjusted for inflation, rose 0.3% after a 0.1% drop in prior month; March gain reflects spending on household electricity and gas.

With assistance by Jordan Yadoo