Coverage: Consumer spending grows in April

Americans increased their spending in April at the fastest pace in four months, bolstered by a solid gain in incomes.

Martin Crutsinger of the Associated Press had the news:

The strong results underscored expectations that the economy is poised to rebound after a lackluster start to the year.

Consumer spending rose 0.4 percent in April after a 0.3 percent rise in March, the Commerce Department said Tuesday. It was the best showing since December. Incomes also rose 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 key reason the economy, as measured by the gross domestic product, expanded by just 1.2 percent at the start of the year.

Economists are hopeful GDP growth will rebound to around 3 percent in the current April-June quarter.

Lucia Mutikani of Reuters reported that the spending will lead to the Fed raising interest rates:

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, is likely to remain on solid ground in the wake of other reports on Tuesday that showed confidence among households still at lofty levels despite some slippage this month and strong gains in house prices in March.

“Fed officials can continue with their gradual pace of rate hikes in June as the economy remains on course for stronger growth this quarter and throughout the rest of the year,” said Chris Rupkey, chief economist at MUFG Union Bank in New York.

The Commerce Department reported that consumer spending increased 0.4 percent last month after an upwardly revised 0.3 percent gain in March as households spent more on both goods and services.

April’s increase was the biggest since December and eased concerns about second-quarter economic growth after weak reports on core capital goods orders, the goods trade deficit and inventory investment in April. Consumer spending was previously reported to have been unchanged in March.

Consumer spending grew at its slowest pace in more than seven years in the first quarter, helping to restrict the increase in gross domestic product to an annual rate of 1.2 percent in the first three months of the year.

Jim Puzzanghera of the Los Angeles Times reported the data indicates the economy has rebounded from a weak winter:

Personal consumption expenditures increased 0.4% in April, up from 0.3% the previous month, the Commerce Department said Tuesday.

Americans had more money to spend, with personal incomes also rising 0.4% — twice the pace of growth in March.

“Consumers are back out in force this quarter, spending their hearts away after taking the first quarter of the year off,” said Chris Rupkey, chief financial economist at Mitsubishi UFG Union Bank in New York.

“Fed officials can continue with their gradual pace of rate hikes as the economy remains on course for stronger growth this quarter and throughout the rest of the year,” he said.

Consumer spending, which accounts for about two-thirds of U.S. economic activity, increased just 0.6% from January through March. That was the worst performance since late 2009 and helped contribute to a lackluster 1.2% annual growth rate in the first quarter.

Fed monetary policymakers said after their May 2-3 meeting that they thought the economic weakness was “likely to be transitory.”