WASHINGTON – Americans ramped up their spending in April at the fastest pace in four months, offering fresh evidence the U.S. economy is rebounding this spring after a lackluster winter.
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Personal-consumption expenditures, a measure of household spending on everything from groceries to medical care, increased a seasonally adjusted 0.4% in April from the prior month, the Commerce Department said Tuesday.
That matched economists' expectations and was the largest one-month rise since December.
"The fundamentals for consumer spending are still pretty good: income growth, inflation is low, low interest rates, rising household wealth," said Gus Faucher, chief economist at PNC Financial Services Group.
Incomes grew at a decent pace last month. Personal income, a broad measure that includes wages and government assistance, rose 0.4% from March. The personal-saving rate was steady in April at 5.3%.
Consumer spending and broader economic growth slowed over the winter months. Multiple factors were at work, including mild winter weather that reduced the need for home heating and delayed income-tax refunds for many households.
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Economists had predicted consumption would pick up in the second quarter with the support of low unemployment, continued job gains and rising incomes. Credit scores also have improved as the 2007-09 recession's damage has faded, bolstering household purchasing power.
That spending, now in progress, is set to boost the overall economy. The Federal Reserve Bank of Atlanta's GDPNow model on Tuesday predicted gross domestic product would expand at a 3.8% seasonally and inflation-adjusted annual rate in the second quarter, up from the first quarter's 1.2% growth rate. Forecasting firm Macroeconomic Advisers projected a second-quarter growth rate of 3.2%.
Also Tuesday, the Commerce Department said Federal Reserve's preferred measure of inflation, the price index for personal-consumption expenditures, largely rebounded in April. It rose 0.2% from the prior month after falling 0.2% in March. Excluding the often-volatile categories of food and energy, so-called core prices were up 0.2% in April after dipping 0.1% in March.
Still, inflation continued to weaken on a year-over-year basis. Overall prices rose 1.7% in April from a year earlier, down from 1.9% in March. Core prices were up 1.5% on the year in April, their weakest annual gain since December 2015.
The Fed has set a target of 2% annual inflation as consistent with its legal mandate to promote stable prices. Annual headline inflation as measured by the PCE index was 2.1% in February, the first time it had met or exceeded the Fed's target in nearly five years. But price pressures have diminished somewhat over the past two months.
"After some softness in the details of the inflation data throughout March and April, driven by one-off factors in our view, we expect inflation to firm" in the coming months, Barclays economist Blerina Uruçi said in a note to clients.
Fed officials have signaled they remain on track to continue raising short-term interest rates in the coming months. The U.S. central bank is expected to raise its benchmark federal-funds rate in mid-June by a quarter percentage point, to a range between 1% and 1.25%.
With respect to "the inflation side of our mandate, we're still on track, " Federal Reserve Bank of Philadelphia President Patrick Harker said in a speech last week. "While numbers have retreated slightly...I'm looking at the trend. A month or two in the wrong direction isn't enough to make me lose faith."
But Fed governor Lael Brainard said Tuesday she will be on the lookout for signs of slowing inflationary pressures. "If the soft inflation data persist, that would be concerning and, ultimately, could lead me to reassess the appropriate path of policy," she said.
Josh Mitchell contributed to this article
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(END) Dow Jones Newswires
May 30, 2017 14:14 ET (18:14 GMT)