April Consumer Spending Weakest in 7 Months

Consumer spending was stagnant in April while incomes posted a tiny advance, signs that the economic recovery could slow.

The flat spending level was the weakest showing in seven months, according to the Commerce Department report. Economists had expected a 0.3 percent rise.

Personal incomes rose 0.4 percent, slightly off expectations.

More people are holding on to their money, the report noted. The savings rate rose 3.6 percent in April. The rate had fallen to 3.1 percent in March, the lowest reading since October 2008.

Consumer spending is closely watched because it accounts for 70 percent of total economic activity.

The unchanged level of spending came despite a 0.6 percent rise in March. It also was flat despite a 0.4 percent rise in April retail sales.

"The lesson here is that relatively strong retail sales numbers do not guarantee robust consumption," said Ian Shepherdson, chief U.S. economist at High Frequency Economics, noting that retail sales account for only two-fifths of spending.

The government reported last week that retail sales rose 0.4 percent in March, which had represented a slowdown from a 2.1 percent surge in March sales. The March increase reflected higher spending because of an early Easter holiday this year and attractive incentives offered by automakers.

Even with the flat reading for spending in April, economists said they expected consumer spending would grow at a respectable pace of around 3 percent in the current quarter. But that would be down from spending growth of 3.5 percent in the first three months of the year, the strongest performance in three years.

"The fall in energy prices and a surge in mortgage refinancing has left households with more cash to spend on other items," said Paul Dales, U.S. economist at Capital Economics.

An inflation gauge tied to consumer spending showed no increase in April and a rise of just 2 percent over the past 12 months. Excluding food and energy, prices have been even more behaved, up just 1.2 percent over the past 12 months.

The rise in incomes followed a similar jump in March. A pickup in wages and salaries are being helped by increases in payroll employment.

The country added 290,000 jobs in April. But the jobless rate jumped to 9.9 percent as people who had given up looking for work have resumed searches. High unemployment could dampen spending going forward, limiting the pace of the economic recovery.

The government reported Thursday that the overall economy, as measured by the gross domestic product, grew at an annual rate of 3 percent in the January-March quarter. That was below the initial 3.2 percent estimate for first quarter GDP growth.

Economists worry that growth won't be high enough to push down the unemployment rate and generate the kinds of income gains that will support sustained spending increases.