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US consumer spending flat, inflation pressures muted

JUN 1, 20158:41 PM

[WASHINGTON] US consumer spending was unexpectedly flat in April as households cut back on purchases of automobiles and continued to boost savings, suggesting the economy was growing moderately early in the second quarter.

The Commerce Department report on Monday also showed no inflation pressures, with a price index for consumer spending recording its smallest gain since late 2009 on an annual basis.

The unchanged reading in consumer spending followed an upwardly revised 0.5 per cent increase in March. Consumer spending in April was also curbed by weak demand for utilities as the temperatures warmed up.

Economists polled by Reuters had forecast consumer spending, which accounts for more than two-thirds of US economic activity, increasing 0.2 per cent in April. March's outlays were previously reported to have increased 0.4 per cent.

When adjusted for inflation, consumer spending also was unchanged in April after rising 0.4 per cent in March.

The economy is slowly rebounding from its first-quarter slump, hamstrung by a strong dollar and deep spending cuts in the energy sector, which has been slammed by a plunge in crude oil prices.

Gross domestic product contracted at a 0.7 per cent annual rate in the first three months of the year.

But with output held down by a confluence of temporary factors, including a problem with the model the government uses to smooth the data for seasonal fluctuations, the decline in GDP likely overstates the economy's weakness.

While anaemic consumer spending added to industrial production data in suggesting growth was tepid at the start of the second quarter, upbeat reports on the labour market, business spending plans and housing have hinted at some building up of momentum.

With the tightening jobs market expected to boost wage growth, consumer spending is expected to accelerate in the coming months, also supported by the massive savings households accumulated from cheap gasoline prices.

In April, personal income rose 0.4 per cent after being flat the prior month. That reflected a jump in wages and salaries. With income outpacing consumer spending, the saving rate increased to 5.6 per cent.

With consumption muted, inflation pressures were benign in April. A price index for consumer spending was unchanged after rising 0.2 per cent in March. In the 12 months through April, the personal consumption expenditures (PCE) price index edged up 0.1 per cent, the smallest gain since October 2009.

Excluding food and energy, prices ticked up 0.1 per cent for a third straight month. The so-called core PCE price index increased 1.2 per cent in the 12 months through April.

REUTERS