Consumer spending forms the backbone of the US economy

US consumer spending fell for the second month in a row in April, despite an increase in personal income, official data has shown.

Consumer spending dipped 0.1%, compared with a revised fall of 0.3% in March, the Commerce Department said.

Personal income rose 0.5% – its largest monthly increase since May last year – thanks to tax cuts and benefit payments from the government’s stimulus package.

Analysts said the data reflected a more thrifty consumer as savings increased.

The personal savings rate – calculated as savings as a percentage of post-tax income – rose to 5.7% from 4.5% in March. That was the highest rate since February 1995.

The decline in consumer spending seen in March and April came after shoppers splashed out at the beginning of the year, taking advantage of heavy discounting.

Consumer spending accounts for about 70% of economic activity in the US.

‘Skewed’ data

Salaries remained flat in April, and analysts said consumers were reluctant to spend.

“The income data was skewed by the stimulus, where unemployment insurance was accelerated and extended,” said Peter Boockvar, equity strategist at Miller Tabak.

“The consumer doesn’t seem convinced that it’s an ongoing benefit with the income increase,” said independent market strategist TJ Marta.

“After careful consideration, the consumer is retrenching with the decline in spending. That means the government has to stimulate the economy more.”

Source: BBC