Friday, May 30, 2008

Incomes and spending both slow in April

Incomes and spending both slow in April

By MARTIN CRUTSINGER

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Consumer spending barely budged in April and growth in personal income slowed sharply, even though the government started sending out billions of dollars in economic stimulus payments.

The Commerce Department reported Friday that consumer spending edged up a small 0.2 percent in April, just half the 0.4 percent rise in March. Excluding inflation, the performance was even weaker, showing no gain in spending after excluding price changes.

Incomes rose by just 0.2 percent in April, just half of the March increase. That performance would have been even weaker without the boost it got as the government began mailing the first of $106.7 billion in economic stimulus payments.

Consumer spending, which accounts for two-thirds of total economic activity, is being closely watched at present for signs that the economy could be slipping into a recession.

The weak increases in spending and incomes were in line with expectations. Some analysts said that with the economy so feeble at the moment, spending could falter further in coming months.

"With credit tightening, cash flow being squeezed and confidence near record lows, this will surely continue," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

The government reported Thursday that the overall economy, as measured by the gross domestic product, grew at an annual rate of 0.9 percent, slightly better than the 0.6 percent GDP growth originally estimated. However, growth at that level remained very anemic and some analysts are worried that the GDP could slip into negative territory in the current April-June quarter.

The Bush administration is hoping that a full-blown recession can be averted with the economic stimulus payments now being mailed out. The Commerce report said that those payments, which didn't start until the end of April, totaled $7.8 billion at an annual rate for that month.

The small 0.2 percent rise in personal incomes in April was the weakest gain since a 0.2 percent rise in January. Commerce analysts said it would have been an even weaker 0.1 percent without the boost received from the economic stimulus payments.

Incomes were depressed because private wages and salaries fell at an annual rate of $18.2 billion in April, the biggest setback in a year. This weakness comes in part from four straight months of job layoffs, starting in January.

The economy is being battered by a series of blows, from a prolonged slump in housing to a severe credit crisis and soaring energy prices. All of these factors have rattled consumer confidence, sending it to levels not seen in more than two decades.

For April, consumer prices, measured by an inflation gauge tied to consumer spending, rose by 0.2 percent, down from a 0.3 percent rise in March. However, the rise in inflation was a more modest 0.1 percent in April when volatile food and energy costs are excluded.

The personal savings rate, the amount of spending compared to after-tax incomes, held steady at 0.7 percent in April, the same level as in February and March.

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