WASHINGTON – Americans increased their spending in April at the fastest pace in four months, supported by a solid gain in incomes. The strong results underscores the expectation that the economy is ready to rebound after a weak start of the year.
Consumer spending rose 0.4 percent in April after a 0.3 percent rise in March, the Trade Ministry said Monday. It was the best result since December. The incomes have risen by 0.4 percent, double the 0.2 percent March increase.
Consumer spending, which accounts for 70 percent of economic activity, grew at the slowest pace in seven years in the first quarter. That was a major reason of the economy, as measured by the gross domestic product, expanded by only 1.2 percent at the beginning of the year. Economists are optimistic that GDP growth will recover to around 3 percent in the current April-June quarter.
An important inflation meter the preference of the Federal Reserve edged up a slight 0.2 percent in April, causing the prices to rise just 1.7 percent in the past year, the slowest 12-month gain this year under the Fed’s 2 percent goal. Even with inflation remaining contained, economists think that the Fed will raise its rates for a second time this year at the official meet on June 13-14, especially if the employment report due on Friday shows job growth remains strong.
With spending and revenues both the growth of 0.4 percent in April, the savings rate unchanged for the third month to 5.3 percent of after-tax income. It was 5 percent in January.
The increase in expenditure was led by a 0.9-percent increase in the purchase of a long-lasting durable goods, as a result of a revival in demand after a weak first quarter. The expenditure for non-durable goods such as clothing was a solid 0.6 percent, and spending on services, such as utilities grew a modest 0.3 percent.
The 1.2 percent GDP growth in the first quarter was far below the objectives of President Donald Trump. During the campaign, Trump blasted president Obama’s economic policies, saying they had contributed to the weakest recovery in the post-war period. He promised to double the growth of an anemic 2 percent annual rate above 4 percent, with its economic program with the tax reduction, deregulation, and stricter enforcement of trade rules.
However, so far, the Trump-economic program has made little progress in Congress. He put forward last week a $4.1 billion budget for 2018, but it has attracted the criticism of both the Democrats and Republicans for the sharp cuts of the government of the anti-poverty programs.