U.S. Consumer Spending Flat in March -- Update

Americans' spending was flat for the second straight month during March as inflation headed lower, potential red flags as the Federal Reserve considers further increases in interest rates.

Personal consumption, a measure of what households spent on everything from groceries to dental care, was unchanged in March after a flat reading in February, the Commerce Department said Monday. That marked the weakest two-month stretch of spending in more than two years.

Americans reduced spending on goods, particularly on big-ticket products like cars, while stepping up spending on services, leading to the overall flat reading in March.

The biggest factor was lower inflation, with prices for consumer goods retreating in March. The price index for personal-consumption expenditures, the Fed's preferred inflation gauge, declined 0.2% from a month earlier. Core prices, which exclude food and energy, fell 0.1% -- the first drop in core prices since September 2001.

Overall prices rose 1.8% from a year earlier, while core prices climbed 1.6%. Overall prices had briefly hit the Fed's 2% annual target in February.

"The weakness in inflation, especially in the core measure, has to induce some caution as far as the Federal Reserve deliberations this week," economist James Marple of TD Economics said in a note to clients.

The Fed is expected to hold interest rates steady at its policy meeting this week but has indicated it will increase rates later this year if job growth remains steady and inflation shows signs heading toward its 2% target. Fed officials typically look at trends over months rather than focusing on a single month's data.

Officials have indicated they believe the economy's first-quarter weakness was a blip and that economic growth will rebound this spring. The government last week reported U.S. gross domestic product, a broad measure of output, grew at a 0.7% yearly rate in the first quarter. Weak consumer spending was among the main factors.

Monday's report offered signs of a rebound.

Personal income -- a broad measure of Americans' earnings, investment returns and government assistance -- rose 0.2% in March after climbing 0.3% in February. Higher incomes could lead Americans to spend more.

After adjusting for inflation, spending grew in March. Real spending rose 0.3% from a month earlier after falling in January and February.

Write to Josh Mitchell at joshua.mitchell@wsj.com

(END) Dow Jones Newswires

May 01, 2017 10:50 ET (14:50 GMT)