Frugal American consumers trimmed spending in April—although by less than expected—as rising unemployment kept pocketbooks in check and motivated people to save.
With income growth far outpacing spending, Americans’ personal savings rate zoomed to 5.7%, the highest since February 1995, the U.S. Commerce Department reported Monday.
Consumer spending dipped 0.1% in April. That was slightly less than the 0.2% reduction economists were expecting, although it marked the second straight month that consumers cut back. The pullback came after a burst of buying at the start of the year as shoppers took advantage of deeply discounted merchandise and other promotions.
Americans’ incomes—the fuel for future spending—jumped by 0.5%, following two straight months of declines. The improvement in April was due to tax cuts and benefit payments flowing from President Barack Obama’s stimulus package, the government noted. Wages and salaries, however, were flat in April.
The growth in incomes—the most since May 2008—surprised economists. They were forecasting a 0.2% decline.
Others economic reports out Monday were also encouraging.
<0x2022> U.S. manufacturing activity shrank at a slower pace in May. The Institute for Supply Management’s index came in at 42.8—its highest since September and up from 40.1 in March. A reading below 50 still indicates activity contracted, but the figure beat out economists’ forecasts for a reading of 42 in May.
<0x2022> Construction spending rose a surprising 0.8% in April, the Commerce Department said. Economists were expecting a 1.2% decline. It marked the second straight month that construction spending went up.
While the savings rate was the highest since February 1995, the level of savings—$620.2 billion—was the most on records dating back to January 1959.
That reflects a more thrifty consumer whose wealth—notably nest eggs, investment holdings and home values—has been hard hit by the recession. It also reflects consumers being more cautious given rising unemployment.
In April, consumers trimmed spending on big-ticket “durable” goods like cars and appliances, and on “nondurables” such as clothes and food by 0.6% each. That was a little less than how much they reduced spending on those categories in March.
Consumers increased spending on services by 0.3% in April, up from 0.1% in March.
Most economists believe consumers in the April-to-June quarter will hold tighter to their wallets than they did in the first three months of this year.
