Consumer spending shows slow economy

Personal consumption and income up only 0.2% in April, slowing from previous month.

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By Catherine Clifford, CNNMoney.com staff writer

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NEW YORK (CNNMoney.com) -- Consumer spending and personal spending both increased at a slow pace in April, according to a government report released Friday that was in line with analyst expectations.

The Commerce Department said personal spending by individuals in current dollars rose 0.2% in April, in line with the 0.2% increase expected by economists surveyed by Briefing.com. March's gain was a revised 0.4%.

The report showed personal income increased 0.2% in April, also in line with the 0.2% increase expected by economists. March's gain was 0.3%.

In inflation-adjusted dollars, personal income remained flat from the prior month. Personal spending, in inflation-adjusted dollars, was also flat from the previous month. If inflation-adjusted personal spending is flat, that means that the increase in spending is entirely due to rising prices, not an increase in consumption.

"In the past couple of months, personal income and personal consumption have been moving in lockstep," said Michael Niemira, chief economist with the International Council of Shopping Centers.

"If your income is only growing at the same pace as consumption, it just means you are holding even and more money is going to food and energy," given the current situation of food and energy prices increasing in recent months, said Niemira. "Any leftover money from nondiscretionary spending and other living expenses is shrinking."

In the coming months, Niemira predicts the consumer spending numbers will show improvement as consumers spend their tax rebate checks.

Inflation ticks up

A measure in the report that tracks prices consumers pay on items, excluding food and energy, rose 0.1% over the previous month, in line with analyst expectations.

The so-called core PCE rose 2.1% from the same month a year, the same as the month prior. The Federal Reserve is widely believed to prefer that this year-over-year core inflation number stay in a range of 1% to 2%.

Personal savings increased 0.7% in April, flat from a revised 0.7% in March. That means for every $1,000 that Americans bring in after taxes, they are only saving $7.

As inflation numbers tick up, concerned consumers should pull back slightly in their spending and start saving a little bit more. "That savings rate increasing is good and bad news," said Niemira because a sagging economy depends on consumers spending their greenbacks to pump the economy back to health.

Consumer spending fuels more than two-thirds of the nation's economic activity and is closely watched as a gauge of the economy's health.

A report on first-quarter gross domestic product, a broad measure of the nation's economic activity, came in at a revised 0.9% annual rate increase Thursday.

The Conference Board's latest reading consumer confidence, released Tuesday, dropped to the lowest level in 16 years. To top of page

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