Spend­ing is flat in April de­spite in­come growth

Con­sumers opt to save more amid an un­cer­tain econ­omy

Los Angeles Times - - BUSINESS BEAT - By Jim Puz­zanghera jim.puz­zanghera@la­times.com

WASH­ING­TON — Con­sumer spend­ing was es­sen­tially un­changed in April de­spite solid in­come gains as Amer­i­cans sought to save more of their earn­ings in the face of an un­cer­tain econ­omy.

Per­sonal in­come rose 0.4% af­ter show­ing no gain in March, the Com­merce Depart­ment said Mon­day. The in­crease was larger than the 0.3% ex­pected by econ­o­mists.

But spend­ing by con­sumers, which ac­counts for about two-thirds of eco­nomic ac­tiv­ity, was dis­ap­point­ing.

Spend­ing de­creased slightly — by $2.6 bil­lion, or less than 0.1% — to $12.2 tril­lion, the Com­merce Depart­ment said.

Spend­ing had in­creased an up­wardly re­vised 0.5% in March af­ter a weak win­ter, rais­ing hopes that bad weather had been the main fac­tor in a slow­down that saw spend­ing decline in De­cem­ber and Jan­uary even as gas prices con­tin­ued to fall.

Econ­o­mists had fore­cast spend­ing would in­crease 0.2% in April.

In­stead, con­sumers saved their in­come gains. The per­cent­age of dis­pos­able in­come saved rose to 5.6% in April from 5.2% the pre­vi­ous month.

The an­nual in­fla­tion rate de­clined in April to 0.1% from 0.3% the pre­vi­ous month. The rate, based on per­sonal con­sump­tion ex­pen­di­tures, is the pre­ferred in­fla­tion gauge of the Fed­eral Re­serve.

The Fed wants an­nual in­fla­tion of 2%. Cen­tral bank pol­i­cy­mak­ers have said they want to see inf la­tion mov­ing to­ward that level be­fore they raise their bench­mark short-term in­ter­est rate for the first time since 2006.

Ex­clud­ing volatile food and en­ergy prices, the so­called core an­nual inf la­tion rate was 1.2% in April, down from 1.3% the pre­vi­ous month.

Econ­o­mists are closely watch­ing in­com­ing data to de­ter­mine if the econ­omy is re­bound­ing from a bad first quar­ter.

The Com­merce Depart­ment re­ported Fri­day that the econ­omy shrank at a 0.7% an­nual rate from Jan­uary through March.

Econ­o­mists said the con­trac­tion largely was caused by tem­po­rary fac­tors — the West Coast ports slow­down and se­vere win­ter weather in parts of the coun­try — and ex­pect growth to re­turn in the sec­ond quar­ter.

But other head winds, par­tic­u­larly the strong dollar, are hin­der­ing the econ­omy and could keep the an­nual growth rate be­low 2% this spring.

Con­sumer spend­ing dropped sharply in the first quar­ter com­pared with the pre­vi­ous quar­ter as wor­ries over the state of the econ­omy led to an in­crease in the sav­ings rate. And now spend­ing has got off to a poor start in the sec­ond quar­ter.

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