U.S. Personal Spending Unexpectedly Dips 0.2% In April

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Personal spending in the U.S. unexpectedly decreased in the month of April, according to a report released by the Commerce Department on Friday, with the drop in spending coming as personal income was roughly unchanged.

The Commerce Department said personal spending dipped by 0.2 percent in April after inching up by a revised 0.1 percent in March.

Economists had expected spending to come in flat compared to the 0.2 percent increase originally reported for the previous month.

Jennifer Lee, senior economist at BMO Capital, noted that the drop in spending was not shocking given the decline in gasoline prices and lower unit auto sales.

Real spending, which is adjusted to remove price changes, edged up by 0.1 percent in April following a 0.2 percent increase in March.

Paul Ashworth, Chief U.S. Economist at Capital Economics, said the increase in real spending was limited by a sharp drop in spending on electricity and gas, which came as the unseasonably cold weather in March abated.

"It now looks like second-quarter real consumption will be between 2.0% and 2.5% annualized, down from the revised 3.4% gain in the first quarter," Ashworth said.

Meanwhile, the Commerce Department said personal income edged down by less than a tenth of a percent in April following a 0.3 percent increase in March. Income had been expected to rise by 0.1 percent.

Disposable personal income, or personal income less personal current taxes, fell by 0.1 in April after rising by 0.2 percent in March.

With personal spending and disposable personal income both showing modest decreases, the personal savings rate was unchanged at 2.5 percent in April.

"Overall, a sobering report for those expecting GDP growth to accelerate sharply," Ashworth said. "There will be some modest pick up in the second half of the year, as the fiscal drag starts to ease, but we expect the improvement to be very gradual rather than dramatic."

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