Shoppers stroll along Condotti street during the Christmas season in the Centre of Rome, December 21, 2009.
Credit: Reuters/Alessia PierdomenicoBy Lucia MutikaniWASHINGTON | Fri 29 april 2011 2: 57 pm EDT
WASHINGTON (Reuters)-u.s. consumers increased spending for a ninth straight month in March as they stretched to higher costs for food and gasoline, with inflation books the largest year-on-year gain in 10 months.
Despite the rising cost of living, Americans a little more optimistic about the economy grew even chosen this month and below their expectations for inflation over the medium to long term, another report showed on Friday.
Consumers seem to take to the high costs in pas, but could be put to the test as gasoline prices above $ 4 a gallon. The national price for regular unleaded gasoline rose 3.5 cents to $ 3.88 in the week by Monday.
"My guess is that we're not going to see further increases in energy prices as we go through the year. Consumers will continue to contribute to the expansion, albeit in a supporting role, "said Richard DeKaser, an economist at the Parthenon Group in Boston.
Consumer spending, which 70 percent of the economy-stations, increased by 0.6% last month after upgrading from 0.9 percent in February, the Commerce Department said. But prices rose by a stiff 0.4% month-on-month, leaving spending only 0.2 percent after adjusting for inflation.
While commodity prices have deprived consumers of purchasing power, they are the second quarter with a somewhat optimistic outlook.
The Thomson Reuters/University of Michigan's consumer sentiment index rose to 69.8 of 67.5 in March. The survey one year inflation forecast was unchanged at 4.6 per cent, but the five-to-10-year inflation outlook slipped to 2.9 percent of 3.2% in March.
JOBS FOR THE LIFT-EXPENDITURE
Improvement of confidence and a strengthening of the labour market should support expenditure, even though gasoline prices remain elevated, say economists.
"We are looking for consumption to continue to grow in the second quarter, we'll probably see (expenditure) growth quite similar to what we in the first quarter saw," said Daniel Silver, an economist at JPMorgan in New York.
Consumer spending growth slowed to a 2.7 percent annual rate in the first quarter after an increase of 4 percent in the last three months of 2010, the Government reported on Thursday.
That profit, taking into account the expenditure data released on Friday, a factor behind a slowdown in the overall economic growth to a 1.8% rate at the beginning of this year of enlargement of 3.1% in the last quarter of 2010.
PRODUCTION COOLING?
A third report showed factory activity in the country the Midwest slowed this month, although it remained at a high level of security and the data has little to shake economists beliefs that growth in the current quarter would get.
Economists said tepid demand in the first quarter as companies with less of a need for the reconstruction of inventories had left.
"The need for new orders and production to beef up stocks is greatly reduced and as a result, we see the factory sector slow down somewhat," said DeKaser.
"Production is coming from a sprint earlier this year and still make progress at a healthy clip.
The mixed economic reports had little effect on the u.s. financial markets. Strong profit of Caterpillar Inc., the world's largest heavy-equipment maker and oil company Chevron Corp., the Dow Jones industrial average in line for the best monthly performance since December.
The dollar fell to a three-year low against a basket of currencies to views that the Fed's monetary policy stance accommodative. Prices for us government debt increased.
Caterpillar CEO Doug Oberhelman said he was positive in the short term Outlook for the u.s. economy, but that budget cuts were needed in Washington to lay a more solid basis for growth.
"Instead of pointing fingers at each other, the Administration (Obama) and members of Congress must work hand in hand to find solutions that the u.s. economy for long-term strength will place," said Oberhelman.
MODERATE WAGE GROWTH
The spending report showed consumer prices up 1.8 percent from a year ago--the largest 12-month gain since May.
An index of the core prices, which strips out food and energy costs, rose by only 0.1% in February, holding her year-on-year profit at 0.9%, just a touch above the low of 0.7 percent struck in December.
Fed officials, those watching the core measure closely to measure underlying price trends, have said that they expected not Tower high food and energy costs to ignite a wide inflation.
Income rose 0.5% last month after a 0.4 percent gain in February, but wages and salaries advanced only 0.3%. With unemployment with 8.8 percent in March to help moderate wage growth to keep a lid on prices.
A separate report from the Labor Department showed wages grew a tepid 0.4 percent in the first quarter, and were up only 1.6% from a year ago.
(Edit by Andrea Ricci and Kenneth Barry)
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