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Report finds consumer spending has hit plateau

WASHINGTON — Consumers don't appear confident enough in the economy to open their wallets more freely.

Their spending stalled in April, and without stronger job creation and higher pay, people are less likely to increase their spending in the months ahead to invigorate the recovery.

The flat level for consumer spending was the weakest showing in seven months, according to the Commerce Department report. Personal incomes rose 0.4 percent, in line with expectations but not fast enough to help generate real growth.

Nigel Gault, an economist at IHS Global Insight, said employment will be key to supporting income growth in coming months.

"The consumer needs sustainable income support, so employment reports including next Friday's will be key signals of just how robust consumption will be over the rest of 2010," Gault said.

Economists are looking for 425,000 jobs to be added in May. That would be better than April's 290,000 increase, the biggest one-month rise in four years. The May surge is expected to include a sizable number of temporary census workers hired by the government.

In the meantime, more people are holding on to their money. The savings rate rose 3.6 percent in April.

People are feeling a need to rebuild savings and reduce their debt loads, and this will dampen consumer spending in coming months, said Sal Guatieri, an economist at BMO Capital Markets. But this will be offset somewhat by rising employment gains.

"Although consumers stalled in April, earlier strength and improving labor markets suggest they are merely down and not out," Guartieri said.

The unchanged level of spending came after a 0.6 percent rise in March. It also was flat despite a 0.4 percent rise in April retail sales.

Major retailers reported solid first-quarter earnings over the past two weeks. But executives said they are being cautious given the economic uncertainties. Business in May is below expectations because of cool weather and swings in the stock market, according to the International Council of Shopping Centers.

"It's still a very volatile consumer environment," Glenn Murphy, CEO of Gap Inc., told investors during a conference call late last week. "I'm finding … that it's just very difficult to predict patterns, week to week, weekday to weekends."

Target chairman and CEO Gregg Steinhafel said last week that he expects turbulence throughout the rest of the year.

"There's going to be good months, bad months and some ups and downs, and I think we're seeing an environment where that kind of volatility and unpredictability is just playing out in the consumer environment," he said.

Even with the flat reading for April, economists expect consumer spending to grow at a respectable pace of around 3 percent in the current quarter. That would be down from spending growth of 3.5 percent in the first three months of the year, the strongest level in three years.

Report finds consumer spending has hit plateau 05/28/10 [Last modified: Friday, May 28, 2010 10:09pm]
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