Consumer spending, new jobless claims dip

Consumer spending fell more than expected in March after two straight monthly gains, a stark reminder of a fragile economy that has pushed a record number of Americans to draw jobless benefits.

The Commerce Department said Thursday that consumer spending dropped 0.2 percent in March, worse than the 0.1 percent decline economists expected. Incomes, reflecting persistent mass layoffs, dropped 0.3 percent, also worse than expected.

By JEANNINE AVERSA, AP Economics Writer

The personal savings rate rose to 4.2 percent from 4 percent in February. It stood at 4.4 percent in January, the first time in more than a decade the rate has been above 4 percent for three straight months.

Households have been cutting back on spending and boosting savings during the recession, worried that they need to replenish depleted nest eggs as job cuts mount and investment values plunge.

The fact that spending turned negative in March after two straight gains is a worrisome sign. Consumer spending in the first quarter grew at a 2.2 percent annual rate after two consecutive quarters of declines, but some analysts said that may be just a blip. Economists closely watch consumer spending because it accounts for 70 percent of total economic activity.

Procter & Gamble Co., the world’s largest consumer products maker, on Thursday reported a dip in its quarterly profit and trimmed its full-year outlook, expecting slow sales through June. P&G has been promoting Tide detergent, Pampers diapers and its other products by emphasizing their value to consumers and cutting costs, but sales fell across its broad portfolio.

Meanwhile, the Labor Department said new applications for unemployment aid fell to a seasonally adjusted 631,000 last week. That was down from the prior week’s 645,000, which was revised slightly higher from the government’s initial estimate. Economists had expected a small increase in new claims.

The four-week moving average of initial jobless claims, which smooths out volatility, dropped last week to 637,250. That was the lowest level since late February and a decrease of about 20,000 from the high in early April. Goldman Sachs economists have said a decline of 30,000 to 40,000 in the four-week average is needed to signal a peak.

“We are seeing a mixed picture with the data. Now we have shades of gray, which is an improvement from the fall and winter when it was uniformly black” said Stuart Hoffman, chief economist at PNC Financial Services.

Christina Romer, chair of President Barack Obama’s Council of Economic Advisers, predicted another economic contraction in the second quarter and delivered a downbeat assessment about unemployment. But she said the pace of the decline will moderate sharply over the next several months.

“Whether the recovery begins later this year, as most private forecasters predict, or takes a bit longer is hard to know,” she told Congress’ Joint Economic Committee. “The recovery will almost surely take a long time.”

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