Consumer Spending in U.S. Unexpectedly Declines
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Consumer spending unexpectedly fell in April after the biggest surge in almost five years as incomes slowed, a sign the largest part of the U.S. economy will take time to accelerate.
Household purchases, which account for about 70 percent of the economy, dropped 0.1 percent, the first decrease in a year, after a revised 1 percent gain the prior month that was the strongest reading since August 2009, Commerce Department figures showed today inWashington. The median forecast of 77 economists in a Bloomberg survey called for a 0.2 percent April rise. Incomes advanced 0.3 percent after climbing 0.5 percent.
Today’s report underscores the need for faster progress in the job market that would spur wage gains and provide more households with the means to spend. At the same time, March and April figures together paint a picture of steady demand that’s helping companies such as Lowe’s Cos. (LOW), signaling purchases will contribute to the economy’s rebound this quarter. “A lot of pent-up activity took place in March and now we’re coming back to more normal levels of spending,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford,Connecticut. Stanley was one of economists who correctly predicted the decline. “The risk at this point is that the consumer is falling back into a pattern of mediocre spending growth.”
Nordstrom Inc., the largest U.S. luxury department-store chain, this month reported...Read More
Today’s figures showed that adjusting consumer spending for inflation, which generates the figures used to calculate gross domestic product, purchases fell 0.3 percent in April, the most since September 2009.
Stock Futures
Stock-index futures held losses after the figures, with the contract on the Standard & Poor’s 500 Index maturing in June falling 0.1 percent to 1,916.20 at 8:50 a.m. in New York. Projections for April spending ranged from a decline of 0.1 percent to a gain of 0.5 percent after a previously reported increase of 0.9 percent. The Bloomberg survey median also called for incomes (PITLCHNG) to rise 0.3 percent.
The report follows figures yesterday that showed the economy contracted at a 1 percent annualized rate from January through March, the first decline in three years, as companies added to inventories at a slower pace. Consumer purchases grew at a 3.1 percent rate, reflecting a surge in spending on services including utilities and healthcare, after climbing at a 3.3 percent pace in the final three months of 2013. Economists project gross domestic product to expand at a 3.5 percent rate in the current quarter, according to the median forecast in a Bloomberg survey from May 2 to May 7.
Disposable Income
Today’s figures showed disposable income, or the money left over after taxes, rose 0.2 percent after adjusting for inflation, the smallest gain this year. It climbed 0.3 percent in the prior three months. The saving rate increased to 4 percent from 3.6 percent. Wages and salaries climbed 0.2 percent, the smallest gain this year, after 0.6 percent advance in March. Spending on durable goods, including automobiles, decreased 0.5 percent adjusted for inflation, following a 3.7 percent surge. Purchases of non-durable goods, which include gasoline, fell 0.3 percent.
Services Spending
Household outlays on services dropped 0.2 percent after adjusting for inflation. The category, which includes tourism, legal help, health care, and personal care items such as haircuts, is typically difficult for the government to estimate accurately. Nordstrom Inc., the largest U.S. luxury department-store chain, this month reported first quarter profit that topped estimates, helped by sales at its lower-priced Rack outlets and online unit.
Sustained hiring gains are needed to underpin consumer purchases. Payrolls expanded by more 200,000 workers in May after a 288,000 gain the prior month that was the biggest since 2012, according to the median forecast in a Bloomberg survey of economists ahead of Labor Department data due on June 6. The housing recovery is driving property prices higher and generating demand for building materials and appliances. Home Depot Inc., the largest U.S. home-improvement retailer, and smaller rival Lowe’s are upbeat about sales. “Growth in key indicators such as employment, income, and consumer spending have recently begun to improve from weather-affected levels earlier in the year,” Robert Niblock, chief executive officer of Lowe’s, said on a May 21 earnings call. “Stronger job and income growth and gradually loosening credit conditions indicate that the environment for home improvement spending should remain favorable.”
Gas Prices
Higher costs at the gas pump leave consumers with less to spend on discretionary items. The price of a gallon of regular gasoline has climbed to an average $3.66 so far in May, up from this year’s low point of $3.27 in early February, according to AAA, the biggest U.S. motoring group. Today’s report also showed inflation moved closer to the 2 percent goal of Federal Reserve policy makers. The personal consumption expenditures price index rose 1.6 percent in April from a year earlier, the biggest since November 2012. The core price measure, which excludes food and fuel, rose 0.2 percent from the prior month and was up 1.4 percent from April 2013.
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