US consumer spending was unexpectedly flat in April as households cut back on purchases of automobiles and continued to boost savings, suggesting the economy was struggling to gain momentum early in the second quarter. But there are signs a rebound from the first-quarter's slump is under way, with other reports on Monday showing manufacturing activity picked up in May and construction spending surged in April to a nearly 6-1/2-year high.
Still, soft consumer spending and muted inflation pressures, after a price index for consumer spending in April recorded its smallest gain since late 2009 on an annual basis, suggest the Federal Reserve will probably not raise interest rates before the end of the year. "Neither of these developments make the June policy meeting a more likely date to begin hiking rates than was already the case," said John Ryding, chief economist at RDQ Economics in New York.
The Commerce Department said the unchanged reading in consumer spending followed a 0.5 percent increase in March. Consumer spending was also curbed by weak demand for utilities as temperatures warmed up. Economists polled by Reuters had forecast consumer spending, which accounts for more than two-thirds of US economic activity, increasing 0.2 percent in April.
In a separate report, the Institute for Supply Management (ISM) said its index of national factory activity was 52.8 in May, up from April's reading of 51.5. A figure above 50 indicates expansion in the manufacturing sector. The new orders index rose to its highest level since December. The dollar rose against a basket of currencies, while prices for US government debt fell.
When adjusted for inflation, consumer spending also was unchanged in April after rising 0.4 percent in March. In a second report the Commerce Department said construction spending jumped 2.2 percent to an annual rate of $1.0 trillion, the highest level since November 2008. The percent increase was the largest since May 2012. The manufacturing and construction reports added to business spending plans, employment and housing data in suggesting some momentum in the economy early in the second quarter even as consumer spending and industrial production have been soft.
The economy is slowly rebounding from its first-quarter slump, hamstrung by a strong dollar and deep spending cuts in the energy sector, which has been slammed by a plunge in crude oil prices, as well as the penchant by households to hoard cash. Gross domestic product contracted at a 0.7 percent annual rate in the first three months of the year. But with the output figure held down by a confluence of temporary factors, including a problem with the model the government uses to smooth the data for seasonal fluctuations, the decline in GDP likely overstates the economy's weakness.
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