Tags: US | Economy

Consumers Keep Wallets Shut Despite Higher Income

Friday, 28 May 2010 08:40 AM


U.S. consumer spending was unexpectedly flat in April, but real disposable incomes recorded their biggest increase in nearly a year as the labor market improved and inflation remained muted, a government report showed on Friday.

The Commerce Department said spending was the weakest since September, when it fell 0.6 percent, after increasing by an unrevised 0.6 percent in March.

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.

Despite April's flat reading, analysts expect strong spending in the second quarter as a firming labor market boosts household incomes.

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.

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, after a 0.3 percent gain the prior month. The rise in income prompted households to build savings.

The saving rate rose to 3.6 percent from 3.1 percent in March.

Savings rose to an annual rate of $398.5 billion.

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.

In other economic news, business activity in New York City grew at a record pace in May, marking the fifth largest gain on record, according to an industry report released Friday.

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. Future optimism also increased, with the six-month outlook index rising to 84.2 in May from 75.9 in April. Job growth continued at the quickest pace since at least November 2007.

The employment index rose to 63.3 in May from 61.8 in April. New York City payroll employment rose for four straight months through April after bottoming out in December, the New York ISM report said. Input prices fell after rising briefly last month.

The prices paid index eased to 44.4 in May from 52.9 in April. But purchasing and supply executives scaled back the volume of spending, though to a still-rapid clip. The quantity of purchases index fell to 62.0 in May from 72.1 in April.

© 2015 Thomson/Reuters. All rights reserved.

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