UPDATED -- A new report shows U.S. consumer spending in March took its biggest leap forward since August 2009.
It increased 0.9% from February, according to the U.S. Commerce Department, which upwardly revised February’s first reported increase of 0.3% to a 0.5% gain. Compared to a year earlier the March figure is up 4%.
Consumer spending is a closely watched indicator about the health of the American economy because it accounts for about two-thirds of all economic activity.
The report also showed personal income in March increased 0.5%, the biggest hike in seven months, following a 0.4% February gain. Compared to March 2013, personal income is up 3.4%.
“A big rebound in nominal income and consumption at the end of the first quarter, supporting yesterday's Federal Reserve statement showing an improved assessment of economic conditions as of late following the tepid activity at the start of the year,” said Lindsey Piegza, chief economist the investment firm Sterne Agee. “While there has been ground regained from the January low, on a relative basis, looking at inflation adjusted spending, the consumer remains restricted in their ability to finance increased spending amid stagnant wage growth.”
She cautions the longer-term trend continues to show downward momentum, suggesting the "rebound" may be short-lived.
The report is encouraging because it shows consumers were spending more money in the final month of the first quarter of the year, following a report the day before showing the nation’s gross domestic product increased at an annual rate of just 0.1% from January through March. The GDP is a measure of the nation’s total output of goods and services.
A separate report, meantime, shows total U.S. construction spending in March increased 0.2% following a downwardly revised February drop of 0.2%.
The increase puts the level of total construction spending 8.4% higher than it was in March 2013, according to the U.S. Commerce Department.
Overall residential construction spending hit it strongest pace since August of 2009, led by a 4.3% increase in spending on apartment construction while single-family home construction increased only 0.2%.
A third report shows economic activity in the manufacturing sector expanded in April for the 11th consecutive month, according to the nation's supply executivess.
The April Purchasing Managers’ Index from the Institute for Supply Management registered 54.9%, an increase of 1.2% from March and its highest reading since last December.
The New Orders Index registered 55.1%, equal to the reading in March, indicating growth in new orders for the 11th consecutive month. The Production Index registered 55.7%, slightly below the March reading of 55.9%.
A reading above 50% indicates expansion while one below 50% indicates contraction.
“Comments from the panel generally remain positive, however, some expressed concern about international economic and political issues potentially impacting demand,” said Bradley J. Holcomb, chair of the Institute for Supply Management’s Manufacturing Business Survey Committee.
Of the 18 manufacturing industries, 17 reported growth in April.
“A welcome step in the right direction suggesting manufacturing activity improved in April after weakness at the start of the year. Despite this morning's rise, however, headline growth remains noticeably below the pre-winter weather levels, muddying the outlook for further momentum in the second quarter,” said Piegza. “Yesterday's GDP report showed the economy slowed to a near zero pace, highlighting just how low of a low the economy is recovering from but also highlights just how inadequate the rebound has been thus far.”
Updates adds construction spending and manufacturing reports.