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Consumer Spending Flat for April

Source: WSJ


Posted on 28 May 2010

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Consumer spending, a key growth engine for the economy, was unchanged last month after rising by 0.6% in March, the Commerce Department said in a report Friday. Incomes rose 0.4%, helped by a gradual turnaround in the jobs market and low inflation.

Economists surveyed by Dow Jones Newswires were expecting income to rise by 0.4% and spending to rise by 0.1%.

The U.S. economy started to come out of its severe recession in the second half of 2009, helped by federal stimulus and record-low interest rates. To continue to grow this year, household spending and company investments need to make up for lower government spending. Consumer purchases, which account for more than two-thirds of demand in the economy, are being held back by a still high unemployment rate and heavy debt loads.

U.S. gross domestic product, a broad measure of economy activity, increased by an annualized 3.0% in the first quarter, lifted by higher consumer spending. Although unemployment remains high, a gradually improving jobs market is helping to keep spending and incomes up.

The economy should grow by 3.2% this year and next as consumers, confident the recession is behind them, gradually increase spending, a panel of economists said in a survey last week.

With income growth picking up, U.S. consumers boosted savings in April. Americans last month saved $398.5 billion as the national saving rate rose to 3.6% from 3.1% in March.

Meantime, the slack still left over from the worst recession since the 1930s is keeping a lid on prices. A price gauge that's closely watched by the U.S. Federal Reserve was tame in April, giving the central bank continued reason to keep rates near zero to support the recovery and bring unemployment down.

The core price index for personal consumption expenditures, which excludes food and energy prices because of their volatility, rose 0.1% in April. On a year-over-year basis, that figure stood at 1.2%.

At their last meeting a month ago, Fed officials lowered their forecast for underlying inflation to between 0.9% and 1.2% in 2010, from a previous prediction of between 1.1% and 1.7%. The upper boundary of the core inflation forecast for 2011 and 2012 was also revised lower.

The overall PCE price index, which includes food and energy prices, was flat last month and was up 2.0% on a year-over-year basis.

Commerce on Monday also revised up income data for March, saying incomes grew 0.4%. The government had originally reported that incomes rose 0.3% in March.


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