updated 4/30/2004 12:06:50 PM ET 2004-04-30T16:06:50

Consumers, an important force shaping the economic recovery, spent modestly in March, helping the economy log solid growth in the last quarter.

Major Market Indices

The Commerce Department reported Friday that consumers boosted their spending by 0.4 percent last month. That followed another 0.4 percent increase in February, according to revised figures. February’s increase was double the 0.2 percent advance reported a month ago.

Americans’ incomes, meanwhile, also rose solidly in March, increasing by 0.4 percent. That came on top of a 0.5 percent gain in February. The increase was encouraging because income growth is a main factor in people’s willingness to spend in the future, economists say.

The income and spending figures are not adjusted for price changes.

Consumer spending accounts for roughly two-thirds of all economic activity in the United States. Their behavior plans an important role in determining the strength of the economy’s recovery.

The rise in consumer spending in March wasn’t as large as the 0.7 percent increase economists were forecasting. Last month’s income growth, however, matched analysts’ expectations.

The economy grew at a solid 4.2 percent annual rate in the January-to-March quarter, a slight improvement from the 4.1 percent growth rate in the previous quarter, the government reported Thursday.

Consumer spending from January through March grew at a respectable annual rate of 3.8 percent, following a 3.2 percent pace in the fourth quarter.

In March, consumer spending on big-ticket durable goods, such as cars and appliances, rose by 0.4 percent, following a 0.7 percent increase in February.

Spending on foods, clothes and other nondurable goods advanced by 0.8 percent in March, double the 0.4 percent rise registered in the previous month. Spending on services went up by 0.2 percent, after a 0.4 percent gain.

Tax refunds and super-low interest rates have helped to support consumer spending.

Since last June, a key short-term interest rate controlled by the Federal Reserve has been at 1 percent, the lowest since 1958. Fed policy-makers meet Tuesday and are expected to stay the course.

With the economy gaining traction and inflation picking up, however, some economists believe the Fed will begin to raise rates in August. Fed Chairman Alan Greenspan told Congress last week said that the low rates must rise at some point to keep inflation in check, but he did not say when that might happen.

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