WASHINGTON – Americans increased their spending in April at the fastest pace in four months, bolstered by a solid gain in incomes. The strong results underscored expectations that the economy is poised to rebound after a lackluster start to the year.
Consumer spending rose 0.4 percent in April after a 0.3 percent rise in March, the Commerce Department said Tuesday. It was the best showing since December. Incomes also rose 0.4 percent, double the 0.2 percent March increase.
Consumer spending, which accounts for 70 percent of economic activity, grew at the slowest pace in seven years in the first quarter. That was a key reason the economy, as measured by the gross domestic product, expanded by just 1.2 percent at the start of the year.
Economists are hopeful GDP growth will rebound to around 3 percent in the current April-June quarter.
A key inflation gauge preferred by the Federal Reserve edged up a slight 0.2 percent in April, leaving prices rising just 1.7 percent over the past year — the slowest 12-month gain this year and below the Fed's 2 percent target. Even with tame inflation, economists believe the Fed will raise rates for a second time this year when official meet on June 13-14, especially if the employment report due on Friday shows job growth remaining strong.
"After a two-month hiatus, consumers were out in force this spring, paving the way for a rebound in economic growth," said Sal Guatieri, senior economist at BMO Capital Markets. "The rebound in consumer spending will give the Fed confidence to hike rates in June while low inflation will weigh toward a continued gradual pace of policy normalization."
The Fed boosted its policy rate in March and many analysts are looking for two more rate hikes this year, in June and September.
With spending and incomes both up 0.4 percent in April, the saving rate was unchanged for a third month at 5.3 percent of after-tax income. It had been 5 percent in January.
The rise in spending was led by a 0.9 percent rise in purchases of long-lasting durable goods, reflecting a rebound in demand for autos after a weak first quarter. Spending on non-durable goods such as clothing was up a solid 0.6 percent, and spending on services such as utilities grew a moderate 0.3 percent.
The 1.2 percent GDP growth rate in the first quarter was far below the targets set by President Donald Trump. During the campaign, Trump blasted the Obama administration's economic policies, saying they had contributed to the weakest recovery in the post-World War II period. He promised to double growth from an anemic 2 percent annual rate to above 4 percent with his economic program featuring tax cuts, deregulation and tougher enforcement of trade rules.
However, so far, Trump's economic program has made little headway in Congress. He put forward last week a $4.1 trillion budget for 2018, but it has attracted criticism from both Democrats and Republicans for its sharp cuts in the government's anti-poverty programs.
This story has been corrected to show that the consumer spending report was released Tuesday, not Monday.