US consumers use wage gains to rebuild savings

US CONSUMER spending paused in April after growing in the first quarter at the fastest pace in three years as Americans used gains in wages to rebuild savings.

Purchases were little changed last month after climbing 0.6 per cent in March, indicating an early Easter holiday may have pushed demand into the prior month at the expense of April, according to figures from the Commerce Department yesterday in Washington.

Other reports showed households gained confidence in May and businesses expanded for the eighth consecutive month.

More jobs mean households will be less dependent on government help to maintain spending, which accounts for about 70 per cent of the economy. Profits at retailers including Target are beating estimates, and General Electric is among companies saying the global economic rebound is strong enough to withstand the turmoil in financial markets.

“We are looking at fairly decent gains in consumer spending in the second quarter,” said Conrad DeQuadros, a senior economist at RDQ Economics in New York.

The SP 500 Consumer Staples Index, which includes companies like Wal-Mart Stores and Procter Gamble, climbed 0.2 per cent yesterday on signs incomes were improving.

The median forecast of 77 economists surveyed by Bloomberg News projected a 0.3 per cent gain in spending. Estimates ranged from a decline of 0.1 per cent to a 0.6 per cent increase.

Incomes rose 0.4 per cent in April for a second month, matching the survey median. Wages and salaries rose 0.4 per cent last month after climbing 0.3 per cent in March.

The savings rate climbed to 3.6 per cent last month, the highest level since January, from 3.1 per cent in March as incomes increased and purchases cooled.

Consumer sentiment improved in May, a report from Thomson Reuters/University of Michigan showed. The group’s confidence index rose to 73.6 from 72.2 in April.

The final number exceeded a preliminary reading of 73.3 issued earlier this month, indicating the slump in stocks has not unnerved households. – (Bloomberg)