The strengthening U.S. job market helped boost workers' incomes last month, but consumer spending did not rise as fast, according to government figures released yesterday.
Personal income jumped 0.6 percent in April, up from 0.4 percent in March, for the biggest monthly increase since November, the Commerce Department reported yesterday. The figures rose primarily because more people are working, not necessarily because individual workers are getting pay increases, economists said.
"Consumers do have [more] buying power, and it is coming from more jobs," said Sung Won Sohn, chief economic officer of Wells Fargo Bank, referring to the addition of more than 600,000 U.S. payroll jobs in the past two months.
However, consumers also became "a bit more cautious," last month, he said. They increased their spending by 0.3 percent in April, a slower pace than the 0.5 percent gain the month before.
With income rising faster than spending, the savings rate rose to 2.4 percent in April.
Wages and salaries, the largest single component of personal income, rose 0.5 percent last month, up from 0.3 percent in March. The government also released revised figures since October and found that wage and salary growth was stronger during that period than previously reported.
Take-home pay, or income after taxes, rose 0.4 percent in April, after adjusting for inflation, double the 0.2 percent increase in March.
The economy expanded at a strong 4.4 percent annual rate in the first three months of the year, but many analysts believe the pace has slowed since then because of rising interest rates and prices, particularly for oil products. Sohn is among those who see possibly weaker growth in the months ahead because of these pressures combined with geopolitical tensions and labor market uncertainty.
"What drives consumer consumption is income, and income comes from employment," Sohn said. "Job creation is everything. If we can continue to get a couple of hundred thousand new jobs a month, the economy will be in pretty good shape. If not, consumer spending and business spending will falter."
Several forecasters are estimating the economy will grow at around a 4 percent to 4.4 percent annual rate in the April through June period.
The April income and spending figures "show that consumer spending continues to provide solid but not explosive support for economic growth," Joseph Liro, an economist with Stone & McCarthy Research Associates, said in an analysis provided to clients yesterday.
Meanwhile, inflation, though still low, has risen steadily in recent months, the Commerce report showed.
Consumer prices edged up just 0.1 percent in April, according to an inflation measure tied to the spending figures. Core prices, which exclude those for energy and food items, rose by the same amount, according to the department.
Core consumer prices rose a mild 1.4 percent over the 12 months that ended in April. That level of inflation is considered within the range of "price stability" by many Federal Reserve officials, but it has headed upward since December, when the 12-month change was 0.8 percent.
Fed policymakers said after their last meeting in May that they are likely to raise interest rates at a "measured pace." Analysts generally interpret that to mean the Fed will probably lift its benchmark overnight rate from 1 percent in small steps -- increments of a quarter or half a percentage point -- over many months or even some years, depending on inflation, employment and other economic trends.
Many analysts, and most investors in futures contracts tied to Fed action, believe the Fed will raise the overnight rate by a quarter point in late June, to 1.25 percent.
The inflation figures imply "that broad based inflationary pressures remain relatively modest, and that a measured pace of Fed tightening should be feasible," Andrew Tilton, an economist with Goldman Sachs, said in a note to clients yesterday.