WASHINGTON — Americans are opening their wallets, thanks to gains in personal incomes.
Americans increased their spending in April at the fastest pace in four months, bolstered by a solid gain in incomes. The strong results underscored expectations that the economy is poised to rebound after a lackluster start to the year.
The Commerce Department says consumer spending rose 0.4 percent in April after a 0.3 percent rise in March. It was the best showing since December. Incomes rose 0.4 percent.
Consumer spending, which accounts for 70 percent of economic activity, grew at the slowest pace in seven years in the first quarter. That was a key reason the economy expanded by just 1.2 percent at the start of the year. Economists are hopeful growth will rebound to around 3 percent in the current April-June quarter.
"After a two-month hiatus, American consumers were out in force this spring, paving the way for a rebound in economic growth and a hike in the federal funds rate next month," wrote Sal Guatieri senior economist at BMO Capital Markets in a research note after the data was released.
Consumer spending is on track to reach 2.8 percent on an annualized basis in the second quarter, following slower growth of 0.6 percent in the first quarter, he added. That may bring annual GDP growth to 2.7 percent, Guatieri noted. Higher spending on cars and other vehicles offset a decline in spending on some services such as hotels and recreation in April.
Still, the personal savings rate remained steady at 5.3 percent, which suggests consumers are "just trying to just live within their means," wrote Peter Boockvar, chief market analyst at The Lindsey Group.
As an inflation gauge, the personal consumption expenditure index rose 0.2 percent in April, or"about in line with expectations," Boockvar added. "On inflation, it was uneventful as we enter a time frame where we are now recycling through the rebound in energy prices."