Thursday, May 1, 2008

US Income gains eroded by inflation

US Income gains eroded by inflation

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WASHINGTON - Higher prices took away all the income gains U.S. households received in March, the Commerce Department estimated Thursday.

Consumer prices rose 0.3% during the month, matching the 0.3% rise in incomes that was expected by economists surveyed by MarketWatch.

Real disposable incomes were unchanged in March after accounting for taxes and inflation. Real disposable incomes are up 0.9% in the past year.

Consumer spending increased 0.4%, or just 0.1% after adjusting for rising prices. Economists expected a 0.3% rise in spending.

The report on personal incomes fleshes out monthly details contained in the quarterly report on gross domestic product released on Wednesday. That report showed consumer spending rose at the slowest pace in seven years during the first three months of the year.

Inflation accelerated during March, pushed by higher prices for services and nondurable goods, such as food and energy. Core prices -- which exclude food and energy -- rose 0.2%, a tick higher than expected.
For the past year, consumer prices have risen 3.2%, the slowest year-over-year gain since October. Core prices are up 2.1%, just ahead of the Federal Reserve's target zone.

The Federal Open Market Committee noted surging energy and commodity prices and higher inflation expectations in its policy statement released Wednesday, but the FOMC cut its target interest rate by a quarter percentage point to 2% anyway.

Most analysts believe inflation concerns could keep the FOMC on the sidelines for a while. It has slashed interest rates by 3.25 percentage points in the past seven months in a bid to prevent a recession or market meltdown.
In a separate report, the Labor Department said first-time filings for unemployment benefits shot up by 35,000 last week to 380,000. Continuing claims rose by 74,000 to 3.02 million, further evidence that the job market is weakening

The government will report on the April employment market on Friday, with economists expecting payrolls to fall by 80,000 for a second straight month and for the jobless rate to rise to 5.2%.

Real spending on durable goods fell 0.5%. Real spending on nondurable goods rose 0.2%, the largest gain in five months. Real spending on services rose 0.2.
Income from wages and salaries increased 0.4% in March. Income from small businesses fell 0.5%, the third decline in the past four months. Income from assets rose 0.2%. Income from rents fell 1.2%. Income from transfer payments rose 0.5%.
With spending rising faster than incomes, the personal savings rate fell from 0.4% of disposable income to 0.2%.

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