WASHINGTON (Reuters – U.S. consumer spending rose more than expected in April, boosting the economy’s second-quarter growth outlook, and inflation has picked up, which could prompt the Federal Reserve to maintain its higher interest rates for a while.
Consumer spending jumped 0.8% last month, the Commerce Department said Friday. Data for March has been revised up to show spending rose 0.1% instead of being unchanged as previously reported. Economists polled by Reuters had forecast consumer spending, which accounts for more than two-thirds of US economic activity, to rise 0.4%.
A surge in consumer spending last month dampened economists’ expectations of a sharp slowdown this quarter. Although consumer spending accelerated to its fastest pace in nearly two years in the first quarter, much of the growth was concentrated in January. Weakness in February and March put consumer spending on a weaker growth path heading into the second quarter.
Consumer spending is supported by strong wage gains in a tight labor market. He added to the resilience of the labor market, a rebound in industrial production and an upturn in business activity by suggesting the economy was picking up steam after growing at an annualized rate of 1.3% in the first trimester.
Still, consumer spending has slowed since January’s surge as Americans have become increasingly price-sensitive.
Government social benefits are also shrinking and most low-income households would have exhausted their accumulated savings during the COVID-19 pandemic.
Credit has also become very expensive after the Fed raised interest rates by 500 basis points since March 2022, when the US central bank launched its fastest campaign of monetary policy tightening since the 1980s to controlling inflation. Banks are also tightening lending following the recent turmoil in financial markets.
Minutes of the Fed’s May 2-3 policy meeting released Wednesday showed policymakers “generally agreed” that the need for further rate hikes “has become less certain.”
The personal consumption expenditure (PCE) price index rose 0.4% in April after rising 0.1% in March. In the 12 months to April, the PCE price index rose 4.4% after rising 4.2% in March.
Excluding the volatile food and energy components, the PCE price index rose 0.4% after rising 0.3% in March. The so-called core PCE price index rose 4.7% on an annual basis in April after gaining 4.6% in March. The Fed tracks PCE price indexes for its 2% inflation target.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)