U.S. Consumer Spending Down 0.1%

U.S. consumers cut back on spending in April for the first time in a year, taking an unexpected pause after a big jump during the previous month. The results, however, are unlikely to derail an expected spring rebound in the economy.

Consumer spending, which accounts for 70% of overall economic activity, fell 0.1% in April, the Commerce Department said Friday. The drop was the first in 12 months. But it followed a 1% surge in spending in March, which marked the biggest increase in more than four years.

The latest figure reflects reductions in durable goods purchases such as autos and in services such as heating bills.

Income rose 0.3% in April after a 0.5% March gain.

With spending down while Americans were earning more, the saving rate increased in April to 4% of after-tax income, up from a saving rate of 3.6% in March.

Inflation, as measured by a gauge tied to spending, showed prices rising 1.6% from a year ago, up from a 1.1% year-over-year price gain in March. However, even with the increase, inflation is still below the Federal Reserve's 2% target.

In April, consumers reduced spending on durable goods such as autos by 0.5%, but this drop followed a big 3.6% jump in durable goods spending in March. Consumers boosted spending on nondurable goods a slight 0.1% while trimming spending on services by 0.1%. Spending on services, which includes utility bills, had been rising rapidly during the winter, reflecting higher heating costs due to the severe cold in many parts of the country.

The rise in income was the fourth consecutive gain. The economy has been generating jobs at a solid pace in recent months including a gain of 288,000 jobs in April, the strongest uptick in hiring in two years.

Through the first quarter, consumer spending remained strong, rising at an annual rate of 3.1%, but much of that strength came from increased health care spending reflecting the fact that implementation of the Affordable Care Act opened up new access to the health care system.

People spent more on utilities because of the cold winter, but spending on durable goods such as autos slowed, also because of the weather.

Friday's data follows news Thursday that the overall economy shrank an estimated 1% in the January-March quarter. It was the first contraction in growth in three years and was blamed on a number of special factors including an unusually harsh winter that disrupted economic activity.

Economists believe that further gains in hiring will boost consumer confidence and spending in coming months, driving overall economic growth, as measured by the gross domestic product. Some analysts believe GDP growth could hit an annual rate of 4% in the second quarter and top 3% in the second half of this year.

Consumers were more confident in May than in April, according to the Conference Board, which said its confidence index rose to 83 in May, the second highest level since January 2008, just after the recession began. The survey showed that the number of Americans who consider jobs easier to find rose to a six-year high.

Discover a top stock pick for 2014
Every year, The Motley Fool's chief investment officer hand-picks 1 stock with outstanding potential. Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2976930, ~/Articles/ArticleHandler.aspx, 10/24/2014 11:15:23 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement