U.S. Consumer Spending Dips; Inflation Creeps Up

U.S. consumer spending fell for the first time in a year in April but the decline, which followed two months of solid gains, did not change expectations for a sharp rebound in economic growth this quarter.

* Consumer spending slips 0.1 percent in April

* Signs of price pressures as inflation gauges push higher

* Consumer sentiment ebbs, Midwest manufacturing surges

Other data on Friday showed consumer sentiment slipped in May as households worried about income. However a surge in factory activity in the Midwest confirmed growth was bouncing back after a weather-induced contraction in the first quarter.

Consumer spending dipped 0.1 percent after a revised 1.0 percent jump in March, the largest gain since August 2009, the Commerce Department said. The decline was the first since April 2013.

Spending, which accounts for more than two-thirds of U.S. economic activity, was previously reported to have increased 0.9 percent in March and economists had expected it to rise 0.2 percent in April.

"The disappointing spending report should be viewed in the context of a stronger handoff into the second quarter. In the coming months, we look for ongoing labor market progress to encourage further growth in consumer expenditure," said Gennadiy Goldberg, an economist at TD Securities in New York.

Separately, the Thomson Reuters/University of Michigan's consumer sentiment index fell to 81.9 in May from 84.1 in April but was up slightly from earlier in the month.

The economy shrank in the January-March period for the first time in three years due to a brutal winter but output appears to have rebounded.

Separately, the Institute for Supply Management-Chicago said its business barometer rose to 65.5 in May, the highest in seven months, from 63.0 in April.

U.S. Treasury debt prices fell on the mixed data. The dollar slipped against a basket of currencies, while U.S. stocks were little changed.


While demand slackened last month, there are signs inflation pressures are stirring. A price index for consumer spending increased 0.2 percent in April, the same as in March.

That pushed it up 1.6 percent from a year ago, the largest gain since November 2012. It had advanced 1.1 percent in March.

Excluding food and energy, prices rose 0.2 percent, also the same as March. Core prices were up 1.4 percent from a year ago, the biggest increase since March 2013. They rose 1.2 percent in March.

While both measures remain below the Federal Reserve's 2 percent target, the increase should be welcome news for policymakers worried about low inflation.

"We expect this will mark the start of a gradual move up towards the Fed's target over the next year and a half," said Ted Wieseman, an economist at Morgan Stanley in New York.

Weak medical care costs had kept inflation down but that anchor is slipping away and a rise in those costs plus increasing rents should lift inflation this year.

The Fed, which is scaling back monthly bond purchases, is not expected to start raising interest rates until 2015 after keeping them near zero since December 2008.

Consumer spending last month was weighed down by declines in purchases of durable goods and utilities. Adjusted for inflation, spending recorded its largest fall since September 2009.

Income at the disposal of households after adjusting for inflation and taxes rose for a fourth straight month in April.

The saving rate, which is the percentage of disposable income households are socking away, increased to 4.0 percent.

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