The Commerce Department said on Friday consumer spending dipped 0.1
percent, which was the first decline since April 2013. But the drop
followed an upwardly revised 1.0 percent jump in March that was the
largest gain since August 2009.
"The disappointing spending report should be viewed in the context
of a stronger handoff into the second quarter," said Gennadiy
Goldberg, an economist at TD Securities in New York. "We look for
ongoing labor market progress to encourage further growth in
Last month's decrease, which was driven by weak spending on durable
goods and utilities, did not change expectations economic growth
would top a 3 percent annual pace this quarter after output shrank
in the first three months of the year.
A separate report showed consumer sentiment slipped in May as
households worried about income, but that too was viewed as
temporary in light of the steady labor market improvement.
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.
Another report from the Institute for Supply Management-Chicago
showed factory activity in the U.S. Midwest reached its highest
level in seven months in May, boosted by a surge in new orders.
Order backlogs jumped to a three-year high and inventories rose for
a second consecutive month.
"It provides more evidence that the economy and manufacturing are in
an upswing, and points to rising employment," said John Ryding,
chief economist at RDQ Economics in New York.
U.S. Treasury debt prices fell on the mixed data, while the dollar
slipped against a basket of currencies. U.S. stocks were slightly
[to top of second column]
INFLATION CREEPING UP
The report on consumer spending provided the latest evidence that
inflation was starting to stir.
Prices rose 0.2 percent in April, pushing the year-on-year reading
up to 1.6 percent - the largest gain since November 2012. It had
advanced 1.1 percent in March.
Excluding food and energy, prices increased 0.2 percent. These
so-called core prices were up 1.4 percent from a year ago, the
biggest increase since March 2013.
The pick-up is welcome news for Federal Reserve officials, who have
been worried that inflation was running so far below the central
bank's 2 percent target.
Weak medical care costs has kept inflation down but that anchor is
slipping away. Economists say a rise in those costs plus increasing
rents should lift inflation this year and pave the way for an
interest rate hike from the Fed. (Full Story)
"We believe the inflation backdrop will keep the Fed on a gradual
path to normalization and look for the first rate increase in June
2015," said Michael Gapen, an economist at Barclays in New York.
The Fed has held benchmark overnight interest rates near zero since
(Reporting by Lucia Mutikani; Editing by James Dalgleish and Paul
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