U.S. consumer spending increased more than expected in April, the government reported Thursday, indicating that economic growth was regaining momentum early in the second quarter. The Commerce Department said consumer spending, which accounts for about 70 percent of U.S. economic activity, increased 0.6 percent last month, the biggest gain in five months. Spending rose 0.5 percent in March. The consecutive increases suggest acceleration in consumer spending after it grew at a 1 percent annual rate in the first quarter, the slowest pace in almost five years. April consumer spending was lifted by purchases of gasoline and other energy products. Non-durable goods purchases increased 0.9 percent. There also were increases in purchases of durable goods. Spending on services rose 0.5 percent, lifted by demand for household utilities. Households used savings to fund purchases last month, with income growth remaining weak. Personal income increased 0.3 percent after a 0.2 percent gain in March. With spending outpacing wage gains, savings fell to $419.6 billion in April from $445.7 billion the previous month. Prices continued to rise gradually last month. An inflation gauge tied to consumer spending—the personal consumption expenditures (PCE) price index excluding energy and food—increased 0.2 percent for the third consecutive month, leaving the 12-month increase in the core PCE index at 1.8 percent. The core PCE index is the preferred inflation measure of the Federal Reserve (Fed), which has a 2 percent annual inflation target. Economists expect the annual core PCE index will top the central bank's target in coming months. Moderately rising inflation and a tightening labor market support expectations the Fed will raise interest rates next month. The central bank increased borrowing costs in March and has forecast at least two more interest-rate increases for this year. The solid consumer-spending data, added to reports on trade and industrial production, support economist expectations of accelerating economic growth in the second quarter. Gross domestic product (GDP) estimates for the April-June quarter are above a 3 percent annual rate. The economy grew at a 2.2 percent pace in the first quarter.
