U.S. consumer spending edged up modestly in April, but personal income growth was the slowest in five months, raising concerns about the ability of Americans to keep spending in the future.
Consumer spending increased 0.3 percent in April following a revised 0.2 percent gain in March, the Commerce Department said Friday.
Americans’ income grew 0.2 percent in April, the poorest showing since incomes fell 0.1 percent in November.
Consumer spending accounts for 70 percent of economic activity. Economists hope consumers will keep spending to support further economic growth. But the concern is that incomes have been lagging in this sub-par recovery, meaning households have less to spend.
For the January-March quarter, consumer spending rose at an annual rate of 2.7 percent, the strongest performance since the last quarter of 2010. But there was concern because Americans are receiving little or no pay raises.
Real income — income adjusted for inflation — has been growing too slowly to sustain healthy increases in consumer spending. After-tax income adjusted for inflation rose just 0.4 percent in the first three months of this year, and that followed an even smaller 0.2 percent increase in the final three months of 2011.
Many people have been increasing their spending by saving less. The savings rate dipped to 3.6 percent of after-tax income in the January-March quarter, the lowest level for any quarter since the final three months of 2007. The overall economy expanded at an annual rate of 1.9 percent in the January-March quarter, helped considerably by the solid gain in consumer spending.
Economists believe the economy is growing at an annual rate of 2 percent to 2.5 percent in the current April-June quarter, and they believe growth for the entire year will come in around 2.5 percent. That would be an improvement from last year’s anemic 1.7 percent growth rate. But it is just about half the rate that economists believe is needed to make a significant reduction in the unemployment rate