U.S. Consumer Spending Down 0.1%

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

May 30, 2014 at 9:20AM

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.

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4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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