US Consumer Spending Falls Below Expectations, Savings Rate Increases

by on May 30, 2014 2:04 pm BST

US consumer spending declines below economist expectations in April as incomes slow. Household spending fell .1 percent after a one percent gain in March, according to data from the Commerce Department.

“The March gain in spending was huge, and April brings us back to something more reasonable,” said Stephen Stanley, chief economist at Pierpont Securities LLC, referring to March’s figure being a five-year high. “We need to see an acceleration in labor income, and we really haven’t had that yet. Consumer spending is likely to be steady but nothing spectacular,” Stanley continued. The sluggish labor market has weighed on the US economy, which 70 percent is represented by consumer spending.

Spending on durable goods, such as cars, dropped .5 percent when adjusted for inflation, following a 3.7 percent gain in the previous month. Spending on non-durable goods, such as gas, declined .2 percent.

Disposable income (income minus taxes) rose .2 percent when adjusting for inflation. This was the smallest gain in 2014 after it risen .3 percent over the last three months. The savings rate increased to four percent from 3.6 percent.

With slow income growth and slowly increasing consumer prices, Americans are having less money to spend on discretionary items. An increasing savings rate could have undertones of economic uncertainty.