WASHINGTON - consumers as a whole will probably spend more this year. But it is not because we will all be earn more money. Even lucky enough people get an increase will likely spend most of the additional dollars to pay higher gas and food prices.
But employers are hiring more freely this year and more people means more money spent on fuel economy.
"It is difficult to spend money without an income." "More jobs will be good for the consumer spending", said David Wyss, Chief Economist at Standard & Poor in New York.
People made more money and spent more money in March, the Commerce Department said Friday. But after adjusting for inflation, spending increased by 0.2 percent and the income after taxes were essentially flat.
Consumer spending, which represents about 70 per cent of economic activity, rose at an annual rate of 2.7 per cent during the period from January to March. It was a sharp decline in the growth of 4% in the previous quarter.
Spend less led the economy to grow at only an annual rate of 1.8% in the first three months of the year - lower than the growth of 3.1% in the quarter October-December 2010.
The Americans were willing to spend more this after Congress agreed to give them a 2 percentage points in social security contributions. But a constant increase in the price of gasoline has siphoned away greater part of this extra money, leaving consumers less discretionary money to spend on cars and appliances, restaurant equipment and to take vacations.
Gasoline prices are showing few signs of easing. The national average pump Friday was $3.91 a gallon_ 32 cents higher than what consumers paid at the end of March and a dollar more than what they paid a year ago.
"Consumers have been taking money from their tax cuts and put in their gas tanks to drive to work, said Mark Zandi, Chief Economist at Analytics of Moody." "Higher gas prices have really sucked the wind of the purchasing power of consumers."
Zandi and other economists are optimistic that the price of gasoline will be stabilizing this spring, before deleting the summer or autumn. That might give people more discretionary money and help lift economic growth to more than 3% for the rest of 2011, they say.
At the same time, the economy benefits from the best stretch of hiring two months in five years. Unemployment dropped to a minimum of two years from 8.8% in March. Economists expect employers will be keep adding approximately 200,000 jobs a month until the end of the year. As more people find a job, spending will rise.
But the growth of employment should not give workers a bargaining power more to demand higher wages.
"The unemployment rate is still very high," said Paul Dales, Chief U.S. economist capital economics. "You are not going to request a salary increase when you know there are a lot of people who could do your job.".
As a result, people are saving more than before the recession. It is good for the household budget, but bad for economic growth. The savings rate remains unchanged at 5.5% of the income after tax in March, well above the 2.1% pace in 2007.
Wyss believed that the savings rate remains around where it is now for the rest of the year.
"People were in debt up to their eyes when the recession started and they are working little by little their way out of debt so much," said Wyss.
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