Consumer Spending Rose 0.3% in April Despite Weak Income Growth

By MARTIN CRUTSINGER

WASHINGTON -- Consumer spending edged up modestly in April but personal income growth was the slowest in five months, raising concerns about the ability of Americans to keep spending in the future.

Consumer spending increased 0.3% in April following a revised 0.2% gain in March, the Commerce Department said Friday.

Americans' income grew 0.2% in April, the poorest showing since incomes fell 0.1% in November. The April gain was just half the 0.4% March rise.

Consumer spending accounts for 70% of economic activity. Economists hope consumers will keep spending to support further economic growth. But the concern is that incomes have been lagging in this sub-par recovery, meaning households have less to spend. The small April income gain will add to those worries.

Worries about income growth will likely increase in light of a separate report Friday showing that the nation created just 69,000 jobs in May, the fewest in a year. The unemployment rate rose to 8.2% from 8.1% in April, the first increase in 11 months. Weak job growth translates into weak income growth.

For April, after-tax income adjusted for inflation rose 0.2%, extending a string of weak increases of 0.2% or less that stretch back more than a year.

With consumers spending more in April at the same time their earnings growth slowed, they financed the difference by tapping savings. The savings rate as a percentage of after-tax incomes dipped to 3.4%, matching a low hit in February. The 3.4% rate was the lowest since the savings rate stood at 2.6% in December 2007, just as the recession was beginning. The deep downturn and high unemployment prompted Americans to save more. The annual savings rate climbed to 5.4% in 2008 after dipping to a low of 1.5% in 2005, a year when soaring home prices made Americans feel less of a need to save.

For the January-March quarter, consumer spending rose at an annual rate of 2.7%, the strongest performance since the last quarter of 2010. But there was concern because Americans are receiving little or no pay raises. After-tax income adjusted for inflation rose at an annual rate of just 0.4% in the first three months of this year and that followed an even smaller 0.2% increase in the final three months of 2011.

The overall economy expanded at an annual rate of 1.9% in the January-March quarter, helped considerably by the solid gain in consumer spending.

• <p> <style type="text/css"> .hpgText .interiorPromo {display:none;} </style> </p> <p> Click through to see 5 Big Retail Chains That Will Be Gone in 5 Years</p> <p> By <a href="http://www.dailyfinance.com/tag/@motleyfool/">Rick Aristotle Munarriz, The Motley Fool </a></p>
• <p> <strong>1. Barnes &amp; Noble </strong>(<a href="http://www.dailyfinance.com/quote/nyse/barnes-noble-inc/bks">BKS</a>)<br /> <br /> When the last of the Borders stores closed its doors forever a few months ago, it was only natural to view Barnes &amp; Noble as the obvious beneficiary. Bibliophiles would just flock to the other gargantuan bookstore chain, right?<br /> <br /> Wrong. Things aren't going so well at B&amp;N. Sales actually fell in its latest quarter, as sales of the lower-margin Nook e-readers can't make up the sharp decline in physical books.<br /> <br /> Yes, B&amp;N is ready for the passing of bound books, but what will this mean for its cavernous stores? Store-level sales will continue to decline, and folks will continue to download their books from a wider variety of sources.</p>
• <p> <strong>2. Sears Holdings </strong>(<a href="http://www.dailyfinance.com/quote/nasdaq/sears-holdings-corp/shld">SHLD</a>)<br /> <br /> Lousy sales for Sears and Kmart during the holiday season proved that both department store chains continue to fade in relevance for bargain-seekers, and in late December, the parent of the two struggling retailers revealed that it would be <a href="http://www.dailyfinance.com/2011/12/29/is-sears-headed-for-bankruptcy/">closing as many as 120 stores</a>.<br /> <br /> Sears Holdings is in a lose-lose situation. It needs to update its stores if it wants to stand a chance against its &quot;cheap chic&quot; rivals. Unfortunately, the company just began tapping its credit line, so it's not as if it can afford the necessary upgrades.<br /> <br /> Sears itself has been around for several generations, dating back to its mail-order catalog. Could it really disappear in the next five years? Well, Woolworth was around for more than 100 years when it was liquidated in 1997.</p>
• <p> <style type="text/css"> .hpgText .interiorPromo {display:none;} </style> </p> <p> <strong>3. Best Buy </strong>(<a href="http://www.dailyfinance.com/quote/nyse/best-buy/bby">BBY</a>)<br /> <br /> Everyone seems to be buying smartphones and tablets. They're just not buying them at Best Buy. Shoppers are finding cheaper prices online, forcing Best Buy to shave its already meager margins just to remain competitive.<br /> <br /> It gets worse.<br /> <br /> &quot;Best Buy's worst fears are coming to fruition,&quot; <a href="http://www.dailyfinance.com/2011/12/15/best-buy-still-doesnt-get-it/">I wrote after the consumer electronics retailer's latest quarterly report</a>. &quot;The same shoppers whom it has armed over the years with smartphones, tablets, and laptops are now using those devices to find better prices online. Even when folks do walk into a store, they can seamlessly compare prices on their smartphone to make sure that they're getting the lowest price.&quot;<br /> <br /> Let's also not forget that these are also the same devices that are making all of the shelf space that Best Buy has been devoting to CDs, DVDs, books, and video games obsolete.<br /> <br /> For growth, Best Buy has turned to smaller stores that sell only mobile products. That strategy may or may not pan out over time, but either way, the gargantuan Best Buy stores as you know them now are toast.</p>
• <style type="text/css"> .hpgText .interiorPromo {display:none;} </style><p> <strong>4. RadioShack</strong> (<a href="http://www.dailyfinance.com/quote/nyse/radioshack-corp/rsh">RSH</a>)<br /> <br /> If Best Buy focusing on bite-sized stores emphasizing wireless handsets through different carriers and related accessories sounds familiar, welcome to RadioShack. The small-box specialist got into that game awhile back, after realizing that folks just don't need to stop by a strip-mall shop anymore to pick up some batteries or a remote-controlled car.<br /> <br /> Is this market wide enough for both RadioShack and Best Buy Mobile?<br /> <br /> Forget about the future. RadioShack's situation is ugly right now. The retailer has missed Wall Street's quarterly profit expectations all year long.</p>
• <style type="text/css"> .hpgText .interiorPromo {display:none;} </style><p> <strong>5. GameStop</strong> (<a href="http://www.dailyfinance.com/quote/nyse/gamestop/gme">GME</a>)<br /> <br /> Today, GameStop has one of the most profitable retail models around. The growing retailer's stores stock the latest gaming systems, video games, and accessories. Margins aren't that hot on hardware, but they're pretty sweet on software.<br /> However, the juiciest part of GameStop's model is where gamers trade in their tired games and systems for store credit. GameStop goes on to resell those items at huge markups.<br /> <br /> GameStop stores don't need a lot of selling space given the compact nature of their merchandise, so they fit conveniently in the middle of strip malls where rent is cheap. Sales have held up reasonably well, even though video game industry sales have been largely languishing since 2009.<br /> <br /> GameStop definitely doesn't seem very endangered now, but now that even Best Buy and Amazon.com (<a href="http://www.dailyfinance.com/quote/nasdaq/amazoncom/amzn">AMZN</a>) are accepting trade-ins, the most lucrative part of the GameStop model is under attack.<br /> <br /> Let's also flash forward a few years. As console makers shift to digital delivery of software, where does GameStop fit in? The retailer has made some intriguing acquisitions in digital delivery, but the days of GameStop's physical stores are numbered.</p>
• <style type="text/css"> .hpgText .interiorPromo {display:none;} </style><p> <strong>Add It Up<br /> <br /> </strong>Some of these chains will last longer than others. GameStop's balance sheet is a far cry from Sears Holdings, where credit ratings agencies are biting their nails as they ponder downgrades. However, all five of these concepts just aren't built to last in today's retailing climate.<br /> <br /> Enjoy them while you can.</p>
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Economists estimate the economy is growing at an annual rate of 2% to 2.5% in the current April-June quarter and they expect growth for the entire year will come in around 2.5%. That would be an improvement from last year's anemic 1.7% growth rate. But it is just about half the rate that economists believe is needed to make a significant reduction in the unemployment rate.

An inflation gauge tied to consumer spending showed no increase in April, reflecting falling energy prices. Core prices, which exclude energy and food, rose a tiny 0.1% in April and are up a modest 1.8% over the past year, the smallest 12-month gain since February 2011. That puts the price increases within the Federal Reserve's 2% level for inflation, meaning if the economy needs further help, many Fed officials would probably feel they have the leeway to do more.