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Consumer spending shows weak 0.4% gain in April

The gain in consumer spending in April is the smallest in three months, a further sign of erosion in spending momentum due to higher prices at the gas pump.

May 27, 2011|By Greg Robb

Reporting from Washington — Consumer spending rose by the smallest amount in three months during April, government data showed Friday, in a further sign of erosion in spending momentum due to higher prices at the gas pump.

Consumer spending increased 0.4% last month, the Commerce Department estimated. Meanwhile, personal income rose 0.4% in April. Income has risen for seven straight months.

When adjusted for inflation, the increases in April were even more modest. Adjusted after-tax income was flat in April for the second straight month, and spending increased 0.1% for the second straight month.

Adjusted for inflation, spending on durable and nondurable goods was flat in April. Spending on services rose 0.1%.

Consumer spending is the single largest contributor to U.S. growth, accounting for as much as two-thirds of economic activity. Consumer spending slowed to a 2.2% annual rate in the first quarter from a 4% rate the previous quarter, leading gross domestic product to grow at a moderate annual rate of 1.8% in the January-March quarter.

Growth in both income and spending was revised lower for March. Spending was cut to an increase of 0.5% from the initial estimate of 0.6%, while income was revised to 0.4% growth from the 0.5% previously estimated.

Wages and salary income, which is key for consumer spending, increased 0.4% in April after rising 0.3% in March.

With spending matching incomes in April, the personal savings remained steady at 4.9% of disposable income. This matched the lowest savings rate since October 2008.

Consumer prices rose 0.3% in April, as measured by the personal consumption expenditure price index. Prices were 2.2% higher compared with a year earlier, up from 1.8% in March.

Federal Reserve Chairman Ben S. Bernanke said the U.S. central bank had a target for inflation, as measured by the personal consumption index, of about 2%.

Core consumer prices, which exclude volatile food and energy prices, rose 0.2% in April and are up 1% in the last year. This is up from a record low 0.7% in December but still well within the Fed's comfort zone.

In other data, a gauge of consumer sentiment rose to 74.3 in May from 69.8 in April.

Robb writes for MarketWatch.com/McClatchy.

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