Consumer Spending Flat; Personal Income 0.4% Higher; Sentiment Up

Americans spent less in April but earned and saved more; consumer sentiment rises

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American consumer spending in April 2010 stayed flat at less than 0.1%, compared to an increase of 0.6% in March, while personal incomes rose 0.4%, just above March's level of 0.3%, the Bureau of Economic Analysis (BEA) reported on Friday, May 28.

Real disposable income showed the largest gain in nearly a year, and it was the first time since September that spending did not increase, the April BEA report showed.

U.S. consumers' decision to save more of their income rather than spend it surprised economists, who had expected low inflation and a better jobs picture to drive greater retail sales and purchase of services. Analyst consensus called for a 0.3% rise in spending.

Recent jobless claims data, however, suggest that employers are still reluctant to hire new workers. The Department of Labor said on May 27 that applications for unemployment benefits in the previous week fell by 14,000 to 460,000, and the drop was higher than economists had forecast. The nation's unemployment rate now stands at 9.9%.

Meanwhile, the Reuters/University of Michigan index of consumer sentiment, also released May 28, showed signs of improvement. Consumer sentiment continues to inch up, with the index revised up 0.3 points to 73.6 for its late May reading--an unexpected outcome, as economists had expected it to remain flat. The index stood at 72.2 in April, and the earlier estimate for May was 73.3. The index's long-term average is about 87, which suggests that the U.S. economy still faces an upward climb toward recovery.

The BEA's May 28 report for personal income and spending also conveyed good news on the wages and salaries front.

"Private wage and salary disbursements increased $24.4 billion in April, compared with an increase of $13.7 billion in March," the BEA release said. "Goods-producing industries' payrolls increased $5.8 billion, compared with an increase of $4.1 billion; manufacturing payrolls increased $4.5 billion, compared with an increase of $1.6 billion. Services-producing industries' payrolls increased $18.6 billion, compared with an increase of $9.6 billion."

U.S. personal incomes in April stand at $12.27 trillion, $54.4 billion higher than in March. Consumer spending, or personal consumption expenditures (PCE), increased $4.0 billion in April, compared with an increase of $59.8 billion in March. Personal saving was $398.5 billion in April, compared with $342.7 billion in March. Personal saving as a percentage of disposable personal income was 3.6% in April, compared with 3.1% in March.

Read a story about March's personal income and spending from the archives of InvestmentAdvisor.com.

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