U.S. consumers boost their spending 0.2 pct. last month

Income also increased 0.2 percent

Christopher S. Rugaber
AP Economics Writer

WASHINGTON (AP) — Americans spent more last month and their income grew, the latest indication that tax increases have yet to hold back the consumer.

The Commerce Department said Monday that consumers increased their spending 0.2 percent in March from February. That followed a 0.7 percent jump in February and a 0.3 percent gain in January.

Income increased 0.2 percent last month, following a gain of 1.1 percent in February. After-tax income also rose 0.2 percent.

Higher income has helped offset an increase in Social Security taxes that took effect on Jan. 1. On Friday, the government said consumer spending rose from January through March at the fastest pace in more than two years.

Spending on services drove the March increase. That was partly due to an unseasonably cold March, which required Americans to pay more to heat their homes.

Still, other reports suggest consumers may be starting to feel the impact of the tax increase. Sales at retail stores and restaurants fell in March by the most in nine months.

The 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. Consumer spending accounts for about 70 percent of economic activity.

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.

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.

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