Consumer spending, widely viewed as the engine of the U.S. economic boom, slowed sharply last month after adjusting for inflation, the Commerce Department reported yesterday.
After rising 0.5 percent in March, inflation-adjusted spending fell by 0.1 percent in April. The major culprit appears to have been the previously reported jump in the inflation rate, which was driven largely by an increase in oil prices. Americans presumably were spending more money for gasoline and had less to spend on other consumer items, pushing overall consumption down, economists said.
Some economists, while cautioning against giving too much weight to a single month's results, speculated that the spending report could mark the beginning of a slowdown in the economy, which has been growing so rapidly that analysts fear it could cause the Federal Reserve Board to raise interest rates to head off any broader rise in inflation.
"Those crybabies in the financial markets and at the Fed have been begging for slower consumer spending growth. Well, guess what? It's here," said Ken Mayland, chief economist for KeyCorp, a Cleveland-based bank.
The Commerce Department figures showed a seemingly healthy 0.4 percent increase in spending in April before adjusting for inflation, which appeared to indicate that the consumer spending boom was continuing. But economists said the more meaningful number was the inflation-adjusted 0.1 percent drop.
"The recent evidence shows that the earlier torrid pace of consumption growth is slowing," said Mickey Levy, chief economist for the Bank of America. He noted that both car sales and real estate construction have flattened out, though at high levels.
Like Levy, Doug Lee, chief economist with the investment advisory group Washington Analysis, said the slowing of consumer spending growth was just one of several indicators that point to a broader slowdown. Lee noted that employment growth has slowed, housing starts peaked in January and have fallen since, mortgage refinancing has dropped off sharply and inflationadjusted retail sales are down.
Lee said the annual rate of consumer spending, which increased by an inflation-adjusted 5.5 percent over the last year or so, will likely slow to 2.5 percent to 3 percent for the rest of this year. "That's not a shabby growth rate, by the way," he said.
Economists disagreed about how this would affect economic growth, which has been running at roughly 4 percent a year.
Ray Stone, an economist with Stone & McCarthy Research Associates, said the slackening in consumer spending would be offset by improvements (or less of a worsening) in factors that slowed growth in the first quarter, such as a drag from business inventories and a record trade deficit.
But Martin Regalia, chief economist with the U.S. Chamber of Commerce, said the consumption slowdown could signal "the onset of transition and downshifting to slower economic growth," which he predicted would push gross domestic product increases to about 2.5 percent to 3 percent a year -- slower, but still quite healthy by historical standards.
Regalia cautioned, however, that consumer consumption dipped in similar fashion last July, causing him and others to declare that a GDP slowdown had arrived. "Then we had the two fastest quarters of economic growth and consumption we'd seen in a decade," he said. "It could turn out to be a one-month blip and revert right back to where we were."
Commerce Department figures also showed that inflation-adjusted personal income fell 0.1 percent in April, the first decrease since December.
The numbers also showed that the nation's personal savings rate -- savings as a percentage of disposable income -- remained at an all-time low of minus 0.7 percent for the third month in a row. The Bank of America's Levy said that number is misleadingly bleak, because it excludes the huge gains Americans have made in their stock portfolios, 401(k) plans and individual retirement accounts.
"It looks like we're [not saving] when we're getting wealthier," he said.