Consumer spending declines

Bloomberg NewsMay 30, 2014 

In this Friday, Nov. 23, 2012 file photo, a cashier rings up a sale at a Sears store in Las Vegas. Consumer spending fell unexpectedly in April as incomes slowed.

JULIE JACOBSON — Associated Press

WASHINGTON — Consumer spending unexpectedly fell in April after the biggest surge in almost five years as incomes slowed, a sign the largest part of the U.S. economy will take time to accelerate.

Household purchases, which account for about 70% of the economy, dropped 0.1%, the first decrease in a year, after a revised 1% gain the prior month that was the strongest reading since August 2009, Commerce Department figures showed Friday in Washington. The median forecast of 77 economists in a Bloomberg survey called for a 0.2% rise. Incomes advanced 0.3% after climbing 0.5%.

Friday's report underscores the need for faster progress in the job market that would spur wage gains and provide more households with the means to spend. At the same time, March and April figures together paint a picture of steady demand that's helping companies, signaling purchases will contribute to the economy's rebound this quarter.

"The March gain in spending was huge, and April brings us back to something more reasonable," said Stephen Stanley, chief economist at Pierpont Securities in Stamford, Conn. "We need to see an acceleration in labor income, and we really haven't had that yet. Consumer spending is likely to be steady but nothing spectacular."

Friday's figures showed that adjusting consumer spending for inflation, which generates the figures used to calculate gross domestic product, purchases fell 0.3% in April, the most since September 2009.

Projections for April spending ranged from a decline of 0.1% to a gain of 0.5% after a previously reported increase of 0.9%. The Bloomberg survey median also called for incomes to rise 0.3%.

The report follows figures Thursday that showed the economy contracted at a 1% annualized rate from January through March, the first decline in three years, as companies added to inventories at a slower pace. Consumer purchases grew at a 3.1% rate, reflecting a surge in spending on services including utilities and health care, after climbing at a 3.3% pace in the final three months of 2013.

Economists project gross domestic product to expand at a 3.5% rate in the current quarter, according to the median forecast in a Bloomberg survey from May 2 to May 7.

 

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