WASHINGTON -- 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 rebound in the economy, economists said.
Consumer spending, which accounts for 70 percent of overall economic activity, fell 0.1 percent in April, the Commerce Department said Friday. The drop followed a 1 percent surge in spending in March, which marked the biggest increase in more than four years.
"A lot of pent-up activity took place in March and now we're coming back to more normal levels of spending," said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Conn. "The risk at this point is that the consumer is falling back into a pattern of mediocre spending growth."
The latest figure reflects reductions in durable-goods purchases such as autos and in services such as heating bills. While disappointed, some analysts say the results don't change the broader upward trajectory of the economy and predict consumer demand to bounce back in May.
An "improving job market should support stronger spending in coming months," Jennifer Lee, senior economist at BMO Capital Markets, wrote in a research note.
Friday's government report also showed that income rose 0.3 percent in April after advancing 0.5 percent in March. That marks the fourth-consecutive monthly climb. 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.
With spending down and Americans earning more, the saving rate rose 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 remains below the Federal Reserve's 2 percent target.
In April, consumers reduced spending on durable goods such as autos by 0.5 percent. The drop followed a big 3.6 percent jump in durable-goods spending in March. Consumers increased 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 related to severe cold in many parts of the country.
Higher costs at the gas pump leave consumers with less to spend on discretionary items. The price of a gallon of gasoline has climbed to an average $3.66 so far in May, up from this year's low point of $3.27 in early February, according to AAA, the biggest U.S. motoring group. In Arkansas, the average price of a gallon of gas Friday was $3.41, up from $3.37 a year ago.
Consumer spending remained strong through the first quarter, rising at an annual rate of 3.1 percent. But much of that strength came from increased health-care spending, reflecting new enrollments through the Patient Protection and Affordable Care Act.
Friday's data follow news the previous day that the overall economy shrank 1 percent in the January-March quarter. It was the first contraction in three years and was blamed on a number of special factors including an unusually harsh winter.
Economists estimate that further gains in hiring will raise consumer confidence and spending in the coming months, driving overall economic growth as measured by the gross domestic product. Some analysts say 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.
Information for this article was contributed by Shobhana Chandra of Bloomberg News.
Business on 05/31/2014