Consumer Spending Down 0.1%

The Commerce Department said spending slipped 0.1% after a revised 0.3% fall in March, previously reported as a 0.2% drop. That was slightly better than market expectations for a 0.2% fall in spending.

A government report showed spending, which accounts for over 70% of economic activity, rose at a 1.5% annual rate in the first quarter, but slower than the 2.2% increase the Commerce Department had previously estimated. Consumption plunged in the second half of last year.

Personal income rose 0.5%, the biggest increase since May last year, after falling by a revised 0.2% in March, which had been reported as a 0.3% decline in March. Analysts polled by Reuters had forecast income to fall 0.2% in April.

Real disposable income surged 1.1% in April, boosted by tax cuts and increased social benefit payments under the government’s record $787 billion stimulus package, the Commerce Department said. Excluding the stimulus package, real disposable income increased 0.7% in April.

Savings jumped to a record annual rate of $620.2 billion. The savings rate rose to 5.7% in April, the highest level since February 1995, from 4.5% the previous month. Households, buffeted by job losses and falling asset values, are cutting back spending on non-essential items, preferring to save any extra income.