Consumer spending was stagnant in April while incomes posted a tiny advance, signs that the economic recovery could slow.
The flat spending level was the weakest showing in seven months, according to the Commerce Department report. Personal incomes rose 0.4 percent, in line with expectations but not fast enough to help generate real growth.
More people are holding on to their money, the report noted. The savings rate rose 3.6 percent in April. The rate had fallen to 3.1 percent in March, the lowest reading since October 2008.
Consumer spending is closely watched because it accounts for 70 percent of total economic activity.
The unchanged level of spending came after a 0.6 percent rise in March. It also was flat despite a 0.4 percent rise in April retail sales.
“The lesson here is that relatively strong retail sales numbers do not guarantee robust consumption,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics, noting that retail sales account for only two-fifths of spending.
An early Easter holiday this year and attractive incentives offered by automakers contributed to the March increase in consumer spending.
Major retailers reported solid first-quarter earnings over the past two weeks as consumers have opened their wallets more in the early months of the year. But executives said they are being cautious given the economic uncertainties.
Business in May is below expectations because of cool weather and swings in the stock market, according to the International Council of Shopping Centers.
“It’s still a very volatile consumer environment,” Glenn Murphy, CEO of Gap Inc., told investors during a conference call late last week. “I’m finding…that it’s just very difficult to predict patterns, week to week, weekday to weekends.”
Target Chairman and CEO Gregg Steinhafel said last week he expects turbulence throughout the rest of the year.
“There’s going to be good months, bad months and some ups and downs, and I think we’re seeing an environment where that kind of volatility and unpredictability is just playing out in the consumer environment,” he said.
Even with the flat reading for April, economists expect consumer spending to grow at a respectable pace of around 3 percent in the current quarter. That would be down from spending growth of 3.5 percent in the first three months of the year, the strongest level in three years.
“The fall in energy prices and a surge in mortgage refinancing has left households with more cash to spend on other items,” said Paul Dales, U.S. economist at Capital Economics.
Tame inflation could encourage more spending. Prices did not increase in April and are up just 2 percent over the past year, according to an inflation measure tied to consumer spending. When excluding food and energy costs, prices were up just 1.2 percent in the past year.
The rise in incomes followed a similar jump in March. A pickup in wages and salaries are being helped by increases in payroll employment.
The country added 290,000 jobs in April. But the jobless rate jumped to 9.9 percent as people who had given up looking for work have resumed searches. High unemployment could dampen spending going forward, limiting the pace of the economic recovery.
The government reported Thursday that the overall economy, as measured by the gross domestic product, grew at an annual rate of 3 percent in the January-March quarter. That was below the initial 3.2 percent estimate for first quarter GDP growth.
Economists worry that growth won’t be high enough to push down the unemployment rate and generate the kinds of income gains that will support sustained spending increases.