US consumer spending down 0.1 percent in April

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Associated Press

Posted on May 30, 2014 at 6:02 AM

Updated Friday, May 30 at 6:09 AM

WASHINGTON (AP) — 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 percent of overall economic activity, fell 0.1 percent in April, the Commerce Department said Friday. The drop was the first in 12 months. But it followed a 1 percent 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 percent in April after a 0.5 percent March gain.

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

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

In April, consumers reduced spending on durable goods such as autos by 0.5 percent, but this drop followed a big 3.6 percent jump in durable good spending in March. Consumers boosted spending on nondurable goods a slight 0.1 percent while trimming spending on services by 0.1 percent. 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 percent, 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 1 percent 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 percent in the second quarter and top 3 percent 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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