Bloomberg News/Landov Monitors display stock market information as pedestrians are reflected in a window at the Nasdaq MarketSite in the Times Square area of New York.
The numbers: Consumer spending surged in March while core inflation weakened, government figures show.
Spending jumped 0.9% in March after a 0.1% gain in February. This was the largest monthly gain in almost ten years.
The closely followed core PCE inflation was flat in March, knocking the yearly rate down to 1.6% from 1.7%. This is the lowest rate since September 2017.
Personal incomes, meanwhile, increased 0.1% in March.
Economists surveyed by MarketWatch had been expecting a 0.8% gain in consumer spending and a 0.4% gain in income. Economists projected a 0.1% gain in core inflation.
What happened: The government is releasing two months data as it continues to deal with the backlog created by the partial government slowdown.
Spending surged in March after a sluggish start to the quarter, with a 0.1% gain in February and a 0.3% rise in January.
Income was subdued. The slight 0.1% gain in March follows a 0.2% gain in February and a 0.1% fall in January.
As a result, the savings rate fell to 6.5% in March, which is the smallest since November.
Wages and salaries rose 0.4% in March after a 0.3% gain in the prior month.
Headline inflation firmed in March, rising 0.2% after a 0.1% rise in February. This pushed up the year-on-year reading to 1.5% in March from 1.3% in February.
Big picture: The pickup in spending in March adds to the sense that the economy will remain solid in the second quarter after the 3.2% growth rate in the first quarter. Spending was weak in the first three months of the year but is starting the second quarter at a strong pace.
Core inflation is slightly above the 1.5% annual rate that is considered to be the bottom of the Fed’s comfort zone.
Strong growth and muted inflation is expected to keep the Fed on the sidelines after their meeting this week. Fed officials have said they will be patient about further moves in interest rates.
The market thinks the next move will be an interest rate cut.
What they are saying: Jim O’Sullivan, chief U.S. economist at High Frequency Economics, said growth remains too strong for a rate cut, while inflation remains too weak for a rate hike.
Market reaction: Stocks looked set to open lower in trading on Monday. The Dow Jones Industrial Average DJIA, +0.31% fell slightly last week, the second drop in the past three weeks.