Consumer Spending Dips 0.1 Percent in April; Incomes Flat

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Consumers worried about jobs put a tight grip on their cash and trimmed spending by 0.1 percent in April, the biggest cutback since the beginning of the year.

The dip in spending represented a big pullback by consumers from March, when they ratcheted up spending by 0.8 percent, the Commerce Department (search) reported Friday.

April's spending figure was weaker than economists were expecting. They were forecasting a tiny rise of 0.1 percent .

Americans' incomes, including wages, interest and government benefits, were flat in April -- compared with a solid 0.4 percent increase in March -- as the weak job market took a bite out of earnings. Even though April's income reading was on target with economists' projections, it is still a bit disheartening because income growth is a fuel to power spending down the road.

Consumers are the main force keeping the economy going. However, some economists worry that the stagnant job market may make them more cautious. That could cause the economic recovery to struggle even more to get back on firm footing.

The nation's jobless rate jumped to 6 percent in April as businesses cut jobs for the third straight month. The economy has lost a half million jobs in the last three months, a decline usually associated with recessions.

Some economists believe the jobless rate will creep higher -- to around 6.3 percent to 6.5 percent later this year -- even if the economy improves a bit in the second half of this year, as some analysts hope. Job growth probably won't be strong enough to accommodate all the additional job seekers who would enter the market, attracted by an improved climate.

In an attempt to energize the economy and the job market, President Bush signed into law Wednesday a 10-year, $350 billion package of tax rebates, lower tax rates, new breaks for businesses and investors and aid to states.

Some economists believe the Fed will cut a key interest rate, now at a 41-year low of 1.25 percent, at its next meeting June 24-25. Others believe the Fed will hold the rate steady.

The 0.1 percent drop in consumer spending in April matched a decline posted in January.

In April, consumers cut spending on "nondurable" goods, such as food and clothes, by 1.4 percent, a reversal from March's 1 percent rise.

Spending on "durable" goods, such as cars and appliances, rose 1.2 percent in April, down from a 2.9 percent increase in March. Spending on services went up 0.3 percent in April for the second month in a row.

Americans' disposable incomes, or what's left after taxes, inched up 0.1 percent in April, compared with a 0.4 percent gain in March.

Because disposable incomes went up faster than spending, the nation's personal savings rate, or savings as a percentage of after-tax incomes, rose to 3.7 percent in April, up from 3.5 percent in March.

A gauge of inflation, contained in the report, and closely watched by Fed Chairman Alan Greenspan (search), showed prices falling by 0.2 percent in April, the lowest reading since September 2001. In March, the measure showed prices rising a mild 0.3 percent.

Greenspan and his Fed colleagues have raised concerns over the remote possibility that the country could face a rare episode of deflation -- a widespread and prolonged decline in prices. Some economists said that raised the odds of a rate reduction in June.