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Consumer spending down amid slowdown in economy

By LUCIA MUTIKANI
May 31, 2013

(REUTERS/Shannon Stapleton)

(REUTERS/Shannon Stapleton)

Consumer spending fell in April for the first time in almost a year and inflation pressures were subdued, pointing to a slowdown in economic activity, which should allow the Federal Reserve to maintain its monetary stimulus for a while.

The Commerce Department said on Friday consumer spending fell 0.2 percent, the weakest reading since May last year, after edging up 0.1 percent in March. Economists had expected a 0.1 percent gain.

Consumer spending, which accounts for about 70 percent of U.S. economic activity, was held down by weak demand for utilities and a drop in receipts at gasoline stations on the back of a fall in gasoline prices at the pump.

When adjusted for inflation, spending nudged up 0.1 percent last month after rising 0.2 percent. The sixth straight month of gains in the so-called real consumer spending came as a key inflation gauge fell in April by the most since July last year, pushed down by declining gasoline prices.

That modest rise suggested that consumer spending would slow in the second quarter after accelerating at a 3.4 percent annual pace in the first three months of the year.

“Consumer spending is on a very modest track because income is not growing very much. Wage gain is very low even though job growth has picked up,” said Kevin Logan, chief U.S. economist at HSBC Securities in New York.

U.S. Treasuries prices extended gains after the data, while stock index futures were lower in morning trade.

The economy has been hit by higher taxes and deep government spending cuts as the government tries to slash its budget deficit.

It grew at a 2.4 percent pace in the January-March period, but is expected to slow to a rate of between 1.5 percent and 2.2 percent this quarter because of the government budget cuts, which are already putting a strain on manufacturing.

Lack of income growth as job gains remain moderate is weighing on domestic demand. Last month, income was flat and the saving rate was unchanged at 2.5 percent.

The weak demand tone was underscored by very benign inflation pressures in April.

A price index for consumer spending fell 0.3 percent last month after dipping 0.1 percent in March. A core reading that strips out food and energy costs was flat after rising 0.1 percent the prior month.

Over the past 12 months, inflation has risen just 0.7 percent, the smallest gain since October 2009 and pushing further below the Federal Reserve’s 2 percent target. The index had increased 1.0 percent in the period through March.

Core prices were up 1.1 percent, the smallest rise since March 2011 and slowing from 1.2 percent in March.

The weak spending and the lack of inflation pressures should dampen market speculation the U.S. central bank might start scaling back monetary easing later this year.

Fed Chairman Ben Bernanke said last week a decision to start tapering the $85 billion in bonds the Fed is buying each month could come at one of its “next few meetings” if the economy appeared set to maintain momentum.

“Certainly, the inflation data suggest the Fed at the moment should not be overly concerned about inflation. That gives them plenty of scope to continue QE,” said Logan.

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2 Responses to Consumer spending down amid slowdown in economy

  1. Sandy Price

    May 31, 2013 at 9:12 am

    Normally, I would be very interested in the subject of consumer spending. I worked for many merchandise stores and even had my own book store for years. I was on the Board of several Chamber of Commerce organizations and worked with the merchants within the Chambers in two states.

    Apparently I’m not the only one who down-sized my home and purchasing of items. I have no children at home and have been able to cut back drastically.

    My biggest expense is in books. I still read a lot and give books to my friends and relatives. Socially I am still drawn to others who read, enjoy classical music and find joy in discussing them.

  2. woody188

    May 31, 2013 at 12:29 pm

    “Consumer spending is on a very modest track because income is not growing very much. Wage gain is very low even though job growth has picked up,” said Kevin Logan, chief U.S. economist at HSBC Securities in New York.

    And the immigration bill basically guarantees that will continue by allowing millions more cheap laborers into this country every year.