Consumer Spending Provides More Good News for the Economy

consumer spendingReports of an in increase in consumer spending provided more good news for the U.S. economy and boosted stocks on Friday as Wall Street closed its best first quarter since 1998.  In February, consumer spending rose by the highest rate in seven months – 0.8% – prompting economists to boost their growth forecasts for the first quarter.  This trend developed as demand rose sharply for long-lasting goods like cars. Economists also reported that spending in January was double the previously reported 0.2 percent gain.

Other metrics confirmed the upward trend.  The Thomson Reuters consumer sentiment index climbed to 76.2, the highest level in more than a year. Even with gasoline at nearly $4 per gallon, Americans reported more optimism about the economy this March than at any other time over the past year. “Fears that the economy was going to slow substantially this quarter were overdone. The economy is doing fairly well, given the headwinds from Europe, rising gasoline prices,” said Ryan Sweet, a senior economist at Moody’s Analytics in Pennsylvania.

The Standard & Poor’s 500-stock index rose 5.19 points, (or 0.4%), while the Dow Jones industrial average rose 66.22 points (0.5%). The S&P 500, which is a general measure of the entire market, closed this part three months showing a 12% gain, while the Dow blue-chip index had an 8% gain, the best first quarter in 14 years for both.

The Nasdaq was up almost 19 percent for the year, which would be its best first quarter since 1991.

According to analysts, with confidence remaining strong, consumer spending should stay up in the first half of 2012 and mitigate the impact that slowing factory activity is having on the economy.  A report on Friday indicated that growth in factory activity in the Midwest softened in March, with employment and new orders pulling back from high recent projections.

Analysts also pointed out that the economy expanded at a 3% rate in the final three months of 2011 as businesses restocked their inventories; however, the inventory buildup has most likely run its course and is not expected to help this quarter. When adjusted for inflation, spending increased 0.5 percent, the largest gain since September.

Increased consumer spending suggests that American households were adjusting to the spike in gasoline prices. March prices average about $4 a gallon, and have risen 62 cents since the start of the year.

A 0.2 percent rise in income helped account for some of the recent spending increase, but consumers also saved less. The amount of disposable income that put aside for savings dropped to 3.7 percent, the lowest rate since August 2009.  “While households want to spend and will raid their bank accounts to support that habit, unless income gains start improving, consumption will have to slow,” said Joel L. Naroff, chief economist at Naroff Economic Advisors in Holland, Pa.

Despite good overall news on the economy, many Washington workers continue to struggle with unemployment and other difficulties in the workplace such as wrongful termination and work injuries. If you have suffered a workplace injury, experienced workplace discrimination or have received a notice of requirement from L&I to attend an Independent Medical Examination, please contact an Employment Attorney or L&I Lawyer at Emery Reddy for help with your case.

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