Reuters | U.S. consumer spending was unexpectedly flat in April,
but the largest gain in real disposable income in nearly a year offered
hope spending will trend higher in the second quarter. It was the first
time since September that spending did not increase, according to the
Commerce Department data on Friday.
Analysts polled by Reuters had expected consumer spending, which normally accounts for over two-thirds of U.S. economic activity, to increase 0.3 percent last month after a 0.6 percent rise in March.
U.S. stock index futures were little changed after the data, while Treasury debt prices edged up. The U.S. dollar held modest gains versus the euro.
Despite April’s flat reading, analysts expect strong spending in the second quarter as a firming labor market boosts household incomes and tame inflation bolsters spending power.
“I think the consumer is going down the right path of recovery. As the labor market heals, consumer spending should remain strong,” said Sean Simko, fixed-income portfolio manager at SEI in Oaks, Pennsylvania.
Government data on Thursday showed real consumer spending rose at a 3.5 percent annual rate in the first quarter, more than double the 1.6 percent pace in the October-December period.
Economic recovery is a key goal for President Barack Obama as tough tests loom in November’s congressional elections. Voters are in an anti-incumbent and anti-Washington mood over the recent recession, Wall Street’s role in the crisis, job losses and the weak housing market. ID:nN26200120
SPENDING FLAT
Spending adjusted for inflation was also flat in April after a 0.5 percent increase the prior month, the Commerce Department said.
Personal income rose 0.4 percent, the report showed, after rising by the same margin in March. Markets had expected income to rise 0.5 percent last month.
Real disposable income rose 0.5 percent in April, the largest increase since May 2009, after a 0.3 percent gain the prior month. The saving rate rose to 3.6 percent from 3.1 percent in March.
The report also showed the personal consumption expenditures price index, excluding food and energy, rising 1.2 percent in the 12 months to April, the smallest rise since September.
The index, which is a key inflation gauge monitored by the Federal Reserve, increased 1.3 percent in March.
The combination of tame inflation and excess capacity in the economy, even as the recovery gains traction, means more room for the U.S. central bank to hold benchmark interest rates ultra low for an extended period.
Separately, business activity in New York City grew at a record pace in May, marking the fifth largest gain on record.
The Institute for Supply Management-New York’s seasonally adjusted index of current business conditions showed the May level was the highest since the survey began in 1993. In May, the index rose to 89.9 from 62.2 in April. The 50 level separates growth from contraction
