Consumer spending rose in April at the fastest pace since the end of 2016, suggesting economic growth is picking up after a slow start to the year.
The Commerce Department on Tuesday said consumer spending — the largest contributor to the economy — increased 0.4% last month as lower inflation that reflects falling oil prices gave households an extra cushion. Incomes also rose 0.4% in April.
As MarketWatch reports, Americans had “spent far less in the first three months of 2017, inducing the economy to slow to a paltry 1.2% rate of growth. Although spending in March was revised up to show a 0.3% increase instead of no change, outlays barely rose in the first two months of the year.”
Economists predict the economy will grow 3% in the second quarter.
“After a two-month hiatus, consumers were out in force this spring, paving the way for a rebound in economic growth,” Sal Guatieri, senior economist at BMO Capital Markets, told The Associated Press. “The rebound in consumer spending will give the Fed confidence to hike rates in June while low inflation will weigh toward a continued gradual pace of policy normalization.”
The Fed boosted its policy rate in March and many analysts are looking for another rate hike in June, especially if the employment report due on Friday shows job growth remaining strong.
“Steadily rising incomes means households can spend more without dipping into their savings,” MarketWatch said, noting that the savings rate in April was unchanged at 5.3% for the third straight month.
The rise in spending was led by a 0.9% rise in purchases of long-lasting durable goods, reflecting a rebound in demand for autos after a weak first quarter. Spending on non-durable goods such as clothing was up 0.6%, and spending on services such as utilities grew a moderate 0.3%.
Inflationary pressures continued to fade last month, partly reflecting lower gas prices. The core PCE index — the Federal Reserve’s preferred inflation measure — dipped to a 1.5% year-on-year gain from 1.6% in March and 1.8% in February.