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Published: Saturday, 4/30/2011

Pricier fuel, food siphon off benefits of job growth

Experts confident costs will level off

ASSOCIATED PRESS

WASHINGTON — Consumers as a whole will likely spend more this year. But it’s not because we’ll all be earning more money. Even people lucky enough to get a raise likely will spend most of the extra dollars to pay more for gas and food.

Employers are hiring more this year and more people working means more money spent.

“It is hard to spend money without an income. More jobs will be good for consumer spending,” David Wyss, chief economist at Standard & Poor’s in New York, said.

People made more money and spent more money in March, the Commerce Department reported Friday. But after adjusting for inflation, spending rose only 0.2 percent and after-tax incomes essentially were flat.

Consumer spending, which accounts for about 70 percent of economic activity, grew at an annual rate of 2.7 percent in the January-March period.

That was a sharp drop from the 4 percent growth in the previous quarter.

Less spending led the overall economy to grow at only a 1.8 percent annual rate in the first three months of the year — weaker than the 3.1 percent growth in the October-December quarter of 2010.

Americans were poised to spend more after Congress agreed to give them a 2 percentage-point cut in Social Security payroll taxes.

But a steady rise in gas prices has siphoned away most of that extra money, leaving consumers with less discretionary money to spend on cars and appliances, at restaurants, and on vacations.

“Consumers have been taking the money from their tax cuts and putting it in their gas tanks to drive to work,” Mark Zandi, chief economist at Moody’s Analytics, said.

“The higher gas prices have really sucked the wind out of consumers’ purchasing power.”

Economists are hopeful that gas prices will level off this spring, before dropping in the summer or fall to give people more discretionary money, which would help lift economic growth to more than 3 percent for the rest of 2011, they say.



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