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Consumer Spending Retreats but Consumers are Very Upbeat

May 31, 2013

By Evan Lockridge

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Consumers pulled back on their spending in April but still have good confidence in the American economy according to separate reports released today.

The U.S. Commerce Department says consumer spending in April fell 0.2% from a downwardly revised 0.1% increase in March. The drop in April was the first in close to a year. Excluding the volatile food and energy sectors, April’s performance was unchanged from the month before.

The decline has some economists concerned, because consumer spending accounts for an overwhelming portion of total U.S. economic activity. It increased at an annual rate of 3.4% in the first quarter of the year, helping the economy grow 2.4% during the period despite federal budget cuts and Social Security taxes returning to normal levels.

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Likely leading to the decline in consumer spending was personal income not changing in April following increases in February and March. This is raising expectations that the U.S. economy is growing more softly in the current quarter than in the first one.

Despite this performance, consumer confidence is soaring. The Thompson Reuters/University of Michigan index shows it increased this month to its highest level since July 2007, which is prior to the Great Recession. The performance was higher than a consensus estimate from a survey of economists by Bloomberg News.

Both the current economic conditions gauge and the consumer expectations component increased, with the former hitting its highest level since October 2007.

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