Consumer Spending Slips in April, Inflation Creeps Up

consumer spending
Ross D. Franklin/AP
By Lucia Mutikani

WASHINGTON -- U.S. consumer spending fell for the first time in a year in April after two months of solid gains, but the decline is likely temporary given a strengthening jobs market.

The Commerce Department said Friday consumer sentiment slipped 0.1 percent, which was the first decline since April 2013. But the drop followed an upwardly revised 1 percent jump in March that was the largest gain since August 2009.

"The disappointing spending report should be viewed in the context of a stronger handoff into the second quarter," said Gennadiy Goldberg, an economist at TD Securities in New York. "We look for ongoing labor market progress to encourage further growth in consumer spending."

Last month's decrease, which was driven by weak spending on durable goods and utilities, didn't change expectations economic growth would top a 3 percent annual pace this quarter after output shrank in the first three months of the year.

A separate report showed consumer sentiment slipped in May as households worried about income, but that too was viewed as temporary in light of the steady labor market improvement.

The Thomson Reuters/University of Michigan's consumer sentiment index fell to 81.9 in May from 84.1 in April, but was up slightly from earlier in the month.

Another report from the Institute for Supply Management-Chicago showed factory activity in the U.S. Midwest reached its highest level in seven months in May, boosted by a surge in new orders. Order backlogs jumped to a three-year high and inventories rose for a second consecutive month.

"It provides more evidence that the economy and manufacturing are in an upswing, and points to rising employment," said John Ryding, chief economist at RDQ Economics in New York.

U.S. Treasury debt prices fell on the mixed data, while the dollar slipped against a basket of currencies. U.S. stocks were slightly lower.

Inflation Creeping Up

The report on consumer spending provided the latest evidence that inflation was starting to stir.

Prices rose 0.2 percent in April, pushing the year-on-year reading up to 1.6 percent -- the largest gain since November 2012. It had advanced 1.1 percent in March.

Excluding food and energy, prices increased 0.2 percent. These so-called core prices were up 1.4 percent from a year ago, the biggest increase since March 2013.

The pickup is welcome news for Federal Reserve officials, who have been worried that inflation was running so far below the central bank's 2 percent target.

Weak medical care costs has kept inflation down but that anchor is slipping away. Economists say a rise in those costs plus increasing rents should lift inflation this year and pave the way for an interest rate hike from the Fed.

"We believe the inflation backdrop will keep the Fed on a gradual path to normalization and look for the first rate increase in June 2015," said Michael Gapen, an economist at Barclays in New York.

The Fed has held benchmark overnight interest rates near zero since December 2008.


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roselace14

Anyone, who is spending freely, on "extra consumer wants" in this crummy economy, should have their head examined.

Personally, I am not buying anything, except necessities of daily living. My focus is on saving money --- not spending it as fast as I acquire it. I'm not buying a house. I'm not signing up for any car loans. I'm not racking up credit card bills.

We are in a Depression. NOT a recession. Every time I go anywhere in my town, I see people holding cardboard signs, begging for money. "Lost My Job" --- "Out of Work My Kids Are Hungry" --- "Broke & Desperate" --- "No Job Help A Hungry Vet" --- "Homeless & Hungry Please Help" and lots more like this.

How in the world can these clueless "economic experts", sitting in their think tanks isolated from the real world, expect millions of unemployed people to spend more to beef up a shaky economy????

May 30 2014 at 3:54 PM Report abuse +1 rate up rate down Reply
jdykbpl45

Huffy Puffy, puffs (manipulates) the figures. Figures do not lie but liars (Huffy Puffy), figure! Figure it.

May 30 2014 at 12:00 PM Report abuse -1 rate up rate down Reply
jdykbpl45

Huffy is blocking comments here!

May 30 2014 at 11:57 AM Report abuse -1 rate up rate down Reply
jdykbpl45

Huffy Puffy puffing the figures, as usual. Figures do not lie but liars (Huffington Post), figure!

May 30 2014 at 11:53 AM Report abuse -1 rate up rate down Reply
darbrow717

If the economy contracted in the first quarter from the harsh winter, that means people are not spending in April because of the nice weather? Hmm

May 30 2014 at 10:03 AM Report abuse +3 rate up rate down Reply