US con­sumer spend­ing in April weak­est in 3 months: gov’t

The China Post - - FRONT PAGE - BY MARTIN CRUTSINGER

U. S. con­sumer spend­ing in April posted the weak­est per­for­mance in three months, but a solid gain in in­come growth should help boost spend­ing in the fu­ture.

Con­sumer spend­ing was flat in April af­ter a re­vised 0.5 per­cent in­crease in March, the Com­merce Depart­ment re­ported Mon­day. The March ad­vance had been the big­gest gain since last Au­gust. Per­sonal in­come rose a healthy 0.4 per­cent af­ter be­ing un­changed in March.

The flat read­ing for con­sumer spend­ing in April had been ex­pected given weak­ness pre­vi­ously re­ported in re­tail sales and auto sales for the month. Econ­o­mists, how­ever, fore­cast that spend­ing will re­bound in com­ing months. Strong gains in em­ploy­ment should trans­late into more con­fi­dent con­sumers who are will­ing to spend more.

Con­sumer spend­ing is closely watched be­cause it ac­counts for 70 per­cent of eco­nomic ac­tiv­ity.

The over­all econ­omy shrank in first three month of the year, with the gross do­mes­tic prod­uct con­tract­ing at an an­nual rate of 0.7 per­cent. Econ­o­mists are fore­cast- ing GDP growth will re­bound to around 2.5 per­cent in the cur­rent April-June quar­ter.

Con­sumer spend­ing slowed to growth of just 1.8 per­cent in the first quar­ter, down from spend­ing growth of 4.4 per­cent in the fourth quar­ter. The frigid cold in many parts of the coun­try kept shop­pers away from the malls. With the ar­rival of spring and warmer weather, an­a­lysts are look­ing for spend­ing to re­bound.

The weak­ness in April, the first month in the new quar­ter, re­flected big de­clines in spend­ing on both durable goods such as au­tos and non­durable goods such as cloth­ing and food. Spend­ing on ser­vices, which cov­ers util­ity bills and rent, edged up 0.2 per­cent.

With in­come grow­ing and spend­ing flat, the per­sonal sav­ing rate jumped to 5.6 per­cent of af­ter-tax in­comes, com­pared to 5.2 per­cent in March.

Econ­o­mists be­lieve con­sumers will start spend­ing the sav­ings they have ac­cu­mu­lated from the big drop in gas prices. While the cost of fil­ing up the tank has risen a bit in re­cent weeks, prices are still nearly US$1 be­low the lev­els of a year ago.

Re­cent em­ploy­ment gains are ex­pected to bol­ster spend­ing. The econ­omy cre­ated 223,000 jobs in April, push­ing the un­em­ploy­ment rate down to a nearly seven-year low of 5.4 per­cent.

The Fed­eral Re­serve has kept a key in­ter­est rate at a record low near zero since De­cem­ber 2008 in an ef­fort to com­bat high un­em­ploy­ment. Even though the job mar­ket has re­vived, the Fed has left rates alone, in part be­cause in­fla­tion for nearly three years has been run­ning be­low the Fed’s 2 per­cent tar­get.

Many econ­o­mists be­lieve the cen­tral bank, which next meets on June 16, will de­lay its first rate hike un­til Septem­ber.

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