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Data signal soft economy but not abrupt slowdown

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By Reuters

Published: Friday, May 31, 2013, 8:06 p.m.

WASHINGTON — 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.

Although this suggests the economy may be squeezing out of a soft patch hit early in the second quarter, the limited show of strength is unlikely to convince the Federal Reserve to start scaling back the $85 billion in bonds it is buying each month.

“Any enthusiasm to slow the pace of bond purchases before the end of the summer will likely be tempered at the margin, particularly given the benign inflationary backdrop,” said Millan Mulraine, a senior economist at TD Securities in New York.

Consumer spending fell 0.2 percent, the weakest reading since May last year, the Commerce Department said. When adjusted for inflation, spending nudged up 0.1 percent.

The sixth straight month of gains in the so-called real consumer spending reflected a 0.3 percent decline in a price index for consumer outlays. It was the second straight monthly decline in the index and the largest drop since July last year.

Over the past 12 months, inflation has slowed to just 0.7 percent, the smallest gain since October 2009 and well below the Fed's 2 percent target. The price index had increased 1 percent in the period through March.

A core price index, which strips out food and energy costs, was up 1.1 percent in the past 12 months, compared with a 1.2 percent rise in March.

 

 
 


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