Consumer Spending, Incomes in U.S. Increased in April

U.S. consumer spending rose in April, a sign that households are supporting the economy as the labor market seeks to gain momentum.

Purchases increased 0.3 percent after a revised 0.2 percent gain the prior month, Commerce Department figures showed today in Washington. The median estimate of 78 economists surveyed by Bloomberg News called for a 0.3 percent increase in so-called nominal sales. Incomes rose 0.2 percent, less than forecast.
Households have managed to stretch their budgets to propel growth in the U.S., with consumer spending making up 70 percent of the economy. At the same time, households may have trouble sustaining the pace of spending in the future until a stronger labor market leads to bigger income gains.

“Income growth isn’t sufficient enough to really prop up spending,” said Sean Incremona, a senior economist at 4Cast Inc. in New York, who correctly forecast the gain in purchases. “Match this with the weak payrolls data and this really suggests that spending is going to continue to lose momentum amid a soft and fragile economy.”

In a separate report the Labor Department said today American employers in May added the smallest number of workers in a year and the unemployment rate unexpectedly increased as job- seekers re-entered the workforce. Payrolls climbed by 69,000 last month, less than the most-pessimistic forecast in a Bloomberg News survey, the Labor Department said. The jobless rate rose to 8.2 percent from 8.1 percent, while hours worked declined.
Stock Futures

Stock futures fell after the reports. The contract on the Standard & Poor’s 500 Index dropped 2 percent to 1,283.70 at 8:40 a.m. in New York. The benchmark Treasury 10-year note yield fell nine basis points, or 0.09 percentage point, to 1.47 percent at 8:35 a.m. New York time.

Projections for spending ranged from gains of 0.1 percent to 0.5 percent. The Commerce Department revised the March spending figure from a previously reported 0.3 percent increase.

Incomes increased in April after a 0.4 percent gain the prior month. Economists forecast incomes would rise 0.3 percent, according to the Bloomberg survey. Wages and salaries rose 0.2 percent in April after 0.3 percent a month earlier.

Adjusting consumer spending for inflation, which renders the figure used to calculate gross domestic product, it rose 0.3 percent.
Seasonal Events

Seasonal events may have pulled some sales into the previous month. The average temperature in March was the warmest on record in the U.S., and Easter fell on April 8 compared with April 24 the year before.

Inflation-adjusted spending on durable goods, including automobiles, increased 0.8 percent in April after a 1.2 percent decline the previous month. Outlays for non-durable goods, which include gasoline, rose 0.2 percent in April.

Households stepped up their purchases last quarter to bolster the expansion. Their spending grew at a 2.7 percent annual rate, the most since the final three months of 2010, according to data from the Commerce Department.

To maintain spending at last quarter’s pace, Americans dipped into more of their savings. The savings rate dropped to 3.6 percent, the lowest level since the last three months of 2007, from 4.2 percent in the fourth quarter.

Today’s income report showed the April savings rate dropped to 3.4 percent from 3.5 percent.

Cooling inflation could also help take pressure off Americans’ wallets. A measure of prices tied to consumer spending was unchanged in April. Excluding food and energy, prices increased 0.1 percent.
Overall Economy

“The overall economy is still our customers’ main concern,” Bill Simon, the U.S. chief executive officer of Wal- Mart Stores Inc. said during a May 17 during earnings call. “In particular, they remain concerned about job security or the availability of jobs, followed by gas and energy prices and rising food costs.”