WASHINGTON – Americans stepped up their spending in April at the fastest pace in four months, a sign the U.S. economy is rebounding 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. Estimates for spending in February and March were revised higher, as well.
At the same time, incomes grew at a decent pace. Personal income, a measure that includes wages and government assistance, rose 0.4% from March, just as economists had predicted.
The personal-saving rate was 5.3% in April for the third month in a row.
Tuesday's report also showed the Federal Reserve's preferred measure of inflation, the price index for personal consumption expenditures, rose 0.2% in April 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.
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Inflation continued to slip last month on an annual 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.
Price pressures have weakened over the past two months. Still, some Fed officials have signaled they remain on track to continue raising short-term interest rates in the coming months. Investors and private economists have expected the U.S. central bank will likely raise its benchmark federal-funds rate in mid-June by a quarter percentage point, to a range of 1% to 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."
Consumer spending, a key driver of overall economic growth, slowed over the winter months. Several factors were at work, including mild winter weather that reduced the need for home heating and delayed income-tax refunds for many households.
But economists believe consumption is poised to rebound in the current quarter with the support of low unemployment, continued job gains and rising incomes.
Stronger spending would in turn boost the broader economy. Forecasting firm Macroeconomic Advisers last week predicted gross domestic product would expand at a 3.3% seasonally and inflation-adjusted annual rate in the second quarter, up from the first quarter's 1.2% growth rate. The Federal Reserve Bank of Atlanta's GDPNow model projected a second-quarter growth rate of 3.7%.
The Commerce Department's report on personal income and spending can be accessed at: https://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm
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(END) Dow Jones Newswires
May 30, 2017 08:45 ET (12:45 GMT)