U.S. consumer spending fell in April for the first time in almost a year and already low inflation declined further, undercutting arguments for a near-term tapering of the Federal Reserve's bond-buying stimulus.
Despite the pullback in consumer spending, the economy is not slowing abruptly. Consumer sentiment approached a six-year high in May and factory activity in the Midwest regained speed this month, other data showed on Friday.
Consumer spending fell 0.2% in April, the weakest reading since May 2012, according to the Commerce Department. Consumer spending, which accounts for about 70% of U.S. economic activity, had edged up 0.1% in March. Economists had expected a 0.1% gain last month.
However, once adjusted for inflation, spending nudged up 0.1% in April, the sixth straight month of gains in so-called real consumer spending. The uptick came as a price index for consumer spending fell 0.3%, the largest drop since July last year. It was the second straight month of declines in the index.
Despite an energy-driven pullback in consumer spending last month, consumer sentiment approached a six-year high in May and factory activity in the Midwest picked up speed this month, data showed on Friday. The Thomson Reuters/University of Michigan's final reading on the overall index on consumer sentiment rose to 84.5 from 76.4 in April. It was the highest level since July 2007.
Manufacturing, hit by belt-tightening by Washington, is also showing signs of recovery. The gains were fueled by a pickup in new orders and a jump in the employment measure. In a separate report, the Institute for Supply Management said its Chicago business barometer rose to 58.7 from 49 in April, handily beating economists' expectations for 50. A reading above 50 indicates expansion in the regional economy.
The numbers suggest the economy is squeezing out of a soft patch hit in the second quarter, but the strength might not be sufficient for the U.S. central bank to start scaling back the $85 billion in bonds it is buying each month, some economists say.
In the past 12 months, inflation has slowed to just 0.7%, the weakest since October 2009 and pushing further below the Fed's 2% target. That reading follows Fed Chairman Ben Bernanke's remarks last week that a decision to start tapering the $85 billion in bonds the Fed is buying each month could come at one of its "next few meetings" if the economy appeared set to maintain momentum.