Consumer Spending Experiences Largest Spike in 7 years

Consumer Spending Experiences Largest Spike in 7 years

(Photo Courtesy of Tony Webster)

Consumer spending hit a nearly seven-year high this month, and provided a shot in the arm to economic growth in the second quarter.

Consumer spending increased 1%, the most since August 2009 and more than the 0.7% economists had expected. Personal income grew 0.4%.

In the first quarter, consumption growth was scant as Americans saved their income gains. Some economists blamed unseasonably warm weather, others blame a pullback in auto sales.

But in April, households splurged across the Country. Car buyers led a 2.2% increase in purchases of long-lasting durable goods. Demand for clothing, food and gasoline drove a 0.7% jump in nondurable goods spending. And services consumption rose a solid 0.4%.

With spending outpacing income growth, the savings rate fell from 5.9% to 5.4%.

“After a six-month lull, consumers emerged able and willing to spend more freely in early spring,” economist Greg Daco of Oxford Economics wrote.

Strong consumption (which makes up 70% of economic activity) could push economic growth above 3% at an annual rate in the current quarter after output edged up 0.8% early this year, says Joel Naroff of Naroff Economic Advisors.

Meanwhile, personal consumption expenditure (PCE) prices rose 0.3%, matching estimates, and were up 1.1% for the year, a pickup from 0.8% annual growth in March. Core prices, which exclude volatile food and energy items, increased 0.2%, in line with estimates. The annual increase was unchanged at 1.6%.

Economist Steve Murphy of Capital Economics said the presidential election could be weighing on confidence, noting the two presumptive candidates, Hillary Clinton and Donald Trump, “both have significant net disapproval ratings.”