Thursday, July 16, 2015

US Consumers Spend Less

Consumer Spending Stalled in April as Americans Saved More by Sho Chandra June 1, 2015 8:53 AM EDT, Consumer Spending Stalls as April Incomes Rise 0.4%


Consumer purchases unexpectedly stalled in April as Americans used income gains to shore up savings, raising the risk the biggest part of the economy may take time to gain momentum after a slow start to the year.

The unchanged reading in purchases followed a 0.5 percent gain the prior month that was larger than previously estimated, Commerce Department figures showed Monday in Washington. The median forecast in a Bloomberg survey of 79 economists called for a 0.2 percent rise. Earnings increased 0.4 percent, more than projected, and the saving rate climbed.

Consumers, who’ve been using the money freed up by low gasoline costs to pay down debt or rebuild their balance sheets, would be more inclined to shop as wages accelerate. Sustained improvement in household spending, which accounts for almost 70 percent of the economy, is needed to ensure growth rebounds as Federal Reserve officials project.

“Consumer spending remains a bit restrained,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit and among the top forecasters of spending in the past two years, according to data compiled by Bloomberg. “It suggests a weak start to the quarter and puts growth estimates at risk. I still think things will improve. We’re going to gain some momentum. All the fundamentals are in place for it.”
 
Shares Climb - Stock-index futures held earlier gains after the report. The contract on the Standard & Poor’s 500 Index maturing this month rose 0.2 percent to 2,111 at 8:51 a.m. in New York amid optimism on progress in Greece’s debt talks.
Projections for spending ranged from no change to a gain of 0.3 percent, according to economists surveyed by Bloomberg. The previous month’s reading was initially reported as a 0.4 percent rise. The revised March increase was the biggest since August.
The Bloomberg survey median called for incomes to rise 0.3 percent. The prior month was unrevised at little changed.
Disposable income, or the money left over after taxes, rose 0.3 percent after adjusting for inflation. It fell 0.2 percent in the prior month. Wages and salaries climbed 0.2 percent. The saving rate increased to 5.6 percent from 5.2 percent.
The report also showed that adjusting consumer spending for inflation, which generates the figures used to calculate gross domestic product, purchases were also little changed in April after a 0.4 percent increase in March that was the biggest in four months. Spending’s stop-and-go nature helps explain why the growth has slowed.
 
Economy Contracts - The economy shrank at a 0.7 percent annualized rate in the first quarter, revised from a previously reported 0.2 percent gain, Commerce Department data showed Friday. Household purchases climbed 1.8 percent following a 4.4 percent surge in the prior three months that was the fastest since 2006.
While last quarter’s slump reflected bad weather, a wider trade gap caused in part by a strong dollar, and plunging investment in oil exploration related to the drop in fuel prices, economists see many of the restraints dissipating.
Growth may accelerate to a 2.7 percent pace in the April through June period, with household consumption rising 3.2 percent, a Bloomberg survey showed in early May. Today’s data my prompt some economists to reduce their consumer spending forecasts.
The Fed’s preferred measure of inflation remained tame, the report showed. The price gauge based on the personal consumption expenditures index was unchanged from the prior month and was up 0.1 percent from a year earlier. That was the smallest 12-month gain since October 2009.
Core Prices
The core price measure, which excludes food and fuel, rose 0.1 percent from the prior month and was up 1.2 percent from April 2014. Inflation hasn’t been above the Fed’s 2 percent goal since March 2012.
The strengthening labor market is one reason Americans are likely to keep spending. Payrolls rebounded in April, and the unemployment rate fell to 5.4 percent, the lowest since May 2008. Weekly applications for jobless benefits are hovering just above a 15-year low reached at the end of April.
Still, wage gains remain paltry. Hourly pay was up 2.2 percent in April from a year earlier, holding within the narrow range tracked over the past four years.
Gasoline Prices
Consumers are also benefiting from relatively cheap fuel even as gasoline prices have advanced from a six-year low of $2.03 a gallon on Jan. 25. The nationwide average of $2.45 in April was little changed from the March average of $2.43, according to data from AAA, the biggest U.S. motoring group.
Policy makers expect growth to pick up, one reason they’re considering raising the benchmark interest rate that they’ve held near zero since December 2008.
“Households are seeing the benefits of the improving jobs situation,” Fed Chair Janet Yellen said in a May 22 speech in Providence, Rhode Island. If the economy continues to improve as she expects, “it will be appropriate at some point this year” to start raising rates, she said.
 
Source:http://www.bloomberg.com/news/articles/2015-06-01/consumer-spending-stalled-in-april-as-americans-saved-more
 
 

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