U.S. consumer spending tepid, inflation accelerates
U.S. consumer spending rose modestly in April, starting the second quarter on a soft note as high gasoline prices continued to squeeze household finances and keep inflation pressures simmering.
Further evidence of anemic economic activity was also offered by another report on Friday showing pending sales of previously owned homes plunged to a seven-month low in April.
Consumer spending increased 0.4 percent for a 10th straight month of gains, the Commerce Department said, after rising 0.5 percent in March. It also said annual inflation rose at its fastest pace in 12 months.
Economists had expected spending, which accounts for about 70 percent of U.S. economic activity, to rise 0.5 percent. When adjusted for inflation, spending nudged up 0.1 percent last month after gaining 0.1 percent in March.
In a separate report, the National Association of Realtors said its pending home sales index—which leads actual sales by a month or two—dropped 11.6 percent to 81.9 in April.
The consumer and pending home sales reports were the latest to indicate that the soft patch in activity encountered in the first three months of the year extended into the early part of the second quarter.
"This promotes caution about projecting faster growth in the second quarter," said Pierre Ellis, a senior global economist at Decision Economics in New York.
Consumer spending rose at a 2.2-percent annual rate in the first quarter, braking sharply from a 4 percent pace in the October-December period. That contributed to holding back growth to a 1.8 percent pace during the quarter.
But a recent cooling in gasoline prices should ease some of the pressure on households and boost spending in the months ahead. That was reflected in a third report showing an improvement in consumer sentiment this month and a dialing down of short-term inflation expectations.
The Thomson Reuters/University of Michigan Surveys of Consumers' final May consumer sentiment index rose to 74.3 from 72.4 in the preliminary May reading. Economists had expected it to hold steady.
The national price for regular unleaded gasoline slipped to $3.90 US a gallon in the week through Monday, according to the Energy Information Administration, after peaking just above $4 a gallon early in the month.
"We are optimistic that the recent easing of gas prices—if it continues—will provide a tailwind to consumption in the coming months," said Joseph LaVorgna, U.S. chief economist at Deutsche Bank in New York.
High food and energy prices in April kept inflation elevated last month, with the personal consumption expenditures price (PCE) index rising 0.3 percent after advancing 0.4 percent in March.
Compared to April last year, the index was up 2.2 percent, the biggest rise in a year, after increasing 1.8 percent in March.
The core PCE index—excluding food and energy—increased 0.2 percent on month after rising 0.1 percent in March.
The core index, which is closely watched by Federal Reserve officials, increased 1.0 percent in the 12 months through April, the largest gain since September. The index rose 0.9 percent year-on-year in March and the Fed would like to see it closer to 2 percent.
Incomes rose 0.4 percent last month, in line with expectations and after a 0.4 percent-increase in March. Disposable incomes adjusted for inflation were flat and savings fell to an annual rate of $570.6 billion, the lowest since August 2009, from $576.7 billion in March.