WASHINGTON -- U.S. consumer spending unexpectedly rose in March as benign inflation supported household's spending power, a hopeful sign for an economy that lost significant momentum towards the end of the first quarter.
The Commerce Department said Monday consumer spending advanced 0.2 percent last month after an unrevised 0.7 percent increase in February.
Economists polled by Reuters had expected spending, which accounts for about 70 percent of U.S. economic activity, would be flat last month.
After adjusting for inflation, spending increased 0.3 percent after advancing by the same margin in February. The spending details were included in Friday's first-quarter gross domestic product report.
The report offered hope that growth in the second quarter would probably not slow as sharply as currently feared. The economy grew at a 2.5 percent annual pace in the first three months of the year.
Output in the first quarter was boosted by a brisk 3.2 percent increase in consumer spending, despite the end in January of a 2 percent payroll tax cut.
Last month, income rose 0.2 percent after a 1.1 percent increase in February. Income at the disposal of households after inflation and taxes increased 0.3 percent after a 0.7 percent gain in the prior month.
With income growth matching spending, the saving rate -- the percentage of disposable income households are socking away -- was unchanged at 2.7 percent.
The report showed little inflation, with a price index for consumer spending dipping 0.1 percent, the first drop since November. A core reading that strips out food and energy costs was flat.
Over the past 12 months, inflation has risen just 1.0 percent, the smallest gain since October 2009 and a slowdown from the 1.3 percent logged in the period through February.
Core prices are up 1.1 percent, the smallest rise since March 2011 and well below the Federal Reserve's 2 percent target. Core PCE had increased 1.3 percent in February.
The lack of inflation pressure gives the U.S. central bank scope to maintain its very easy monetary policy stance.
"People are going to pick up how low inflation is and how low it's going. That's what the Fed will be keeping an eye on given the weak demand environment," said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, N.C.
Fed officials meet this week to assess the health of the economy. The Fed is widely expected to keep purchasing bonds at a pace of $85 billion a month.
16 Big Bubbles That Are Getting Ready To Burst
U.S. Consumer Spending Rises Unexpectedly in March
What the experts say: "The cost of college textbooks has been rising at almost twice the rate of general CPI inflation for at least the last 30 years," according to Mark J. Perry, American Enterprise Institute. "As Glenn Reynolds reminds us, 'a process that cannot go on forever, won't,' and the college textbook bubble is certainly one of those processes."
Warning stat: First tier cities Beijing and Guangzhou saw home prices rise 3.1 percent in February, the biggest jumps in the country. Meanwhile, entire towns will go up in China with no inhabitants. These are China's notorious "ghost cities."
Warning stat: The "crypto currency" now trades at $63 -- double what it was at the beginning of March.
What the experts say: "In hindsight, the people who bid the price of Bitcoins up to $30 in 2011 may not have been so crazy after all. It just took the broader market, including me, a couple of years to catch up with them," according to Ars Technica's Timothy B. Lee.
Warning stat: Investors recently bid a record $3.16 for each dollar of the $2.011 trillion in bonds the U.S. government auctioned in 2012, Bloomberg says.
What the experts say: "Long-term interest rates are now unsustainably low, implying bubbles in the prices of bonds and other securities," warns economist Martin Feldstein. "When interest rates rise, as they surely will, the bubbles will burst, the prices of those securities will fall, and anyone holding them will be hurt."
Warning stat: American farmland prices continue to grow at a blazing hot double-digit rate. An industry group recently forecast that values could surge 15 percent to 20 percent in 2013.
What the experts say: "It doesn't have all the hallmarks of a bubble," according to Robert Shiller. "One of them is most people have never heard of it. In my view of a bubble, it's something that gets people excited. Well, some people are excited, but most people don't even know about it."
What the experts say: "The real question in my mind is, 'Are we possibly off to the races again?'" asked economist Robert Shiller. "I think in cities like Phoenix and San Francisco, we might be seeing something pretty big developing. People there are very speculative-minded."
Warning stat: Health care spending has grown 2.5 times faster than incomes over the past 30 years.
What the experts say: "The health care system in the U.S. reminds us somewhat ominously of the bubble in housing finance, a 'public/private partnership,'" says Citi's Steve Wieting. "Housing consumption still receives strong tax preferences, as does health insurance (reflecting underlying health care consumption). Most aptly, prior to quasi-nationalization, housing GSEs earned private profits from public subsidies for housing, as do U.S. health care providers."
Warning stat: Europe stabilized after ECB president Mario Draghi said, "Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough."
What the experts say: "To us the key word about the post summer 2012 Euro Area asset boom is that most of it is a bubble, and one which will burst at a time of its own choosing, even though we concede that ample liquidity can often keep bubbles afloat for a long time," warns Citi Chief Economist Willem Buiter.
Warning stat: Prices are up 47 percent year-over-year, and are sitting at an 8.5 year high of $432 per 1,000 board fee.
What the experts say: "Signs of a housing bubble in the world's most populous nation may force the Chinese government to take measures to 'draw air' out of the rising housing market and to clamp down on construction lending, which would likely put a significant dent in the demand for building materials such as Lumber and Copper," according to Mike Zarembski, OptionsXpress.
What the experts say: Jeff Gundlach notes that not only have wages not increased commensurate with tuition inflation, wages have actually been falling. "What have all these soaring tuition costs got you?" asked Gundlach rhetorically.
Warning stat: Craft beer production surged 15 percent year-over-year in 2012.
What the experts say: Boston Beer Co. founder Jim Koch says most stores have reached their limit for carrying new breweries, and that too many breweries are making similar beers without adding anything to the market.
Warning stat: Canadian home prices mirrored the U.S. housing rally. However, Canadian prices never fell. A recent Canadian Housing Affordability study says the country's home market is 10 percent overvalued.
What the experts say: "I worry that what is happening in Canada is kind of a slow-motion version of what happened in the U.S," said Robert Shiller.
What the experts say: "What we find is that Bernanke does not have nearly as great a track record on inflation as he thinks he has. Greenspan could not see that the housing market was an inflated bubble. Evidently Bernanke cannot see that the stock market is an inflated bubble."