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.
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.