Consumer sentiment falls in April

Martin Crutsinger
Associated Press

American consumers were a bit more downbeat in April after they tightened their grip on their pocketbooks during March.

Overall consumer sentiment for April slid to 89 from 91 in March, according to the University of Michigan index released Friday.

It was the lowest reading since September and the fourth straight drop. The index is down more than 7 percent from its level of 95.9 a year ago.

And consumers already were getting more tightfisted, increasing their spending by just a tiny amount in March even though incomes were up, according to figures released Friday by the Commerce Department.

Consumer purchases of nondurable goods, such as clothing, offset a big fall in spending on autos and other long-lasting items in March, edging spending up 0.1 percent last month after a 0.2 percent rise in February. Meanwhile, incomes rose a solid 0.4 percent, Commerce said.

Consumer spending, which accounts for 70 percent of economic activity, has been lackluster for four months. The weakness played a big role in the first quarter when the economy expanded at an 0.5 percent rate, the slowest increase in two years.

Even though consumers’ assessment of current economic conditions rose during April over March, their outlook slid.

Richard Curtin, chief economist of the Michigan surveys, said consumers may have been troubled this month “by growing uncertainty about the economic policies advocated by various presidential candidates.”

Rising gasoline prices may also have taken a toll. AAA says the average U.S. price of a gallon of regular unleaded gasoline has risen to $2.20 a gallon from $2.04 a month ago.

On Tuesday, the Conference Board, a business group, reported that its measure of consumer spirits also slid in April; consumer expectations about the future fell to a two-year low.

Curtin said the figures suggest that U.S. consumer spending will rise a respectable 2.5 percent this year when adjusted for inflation.

And with job growth still solid, other economists hope stronger spending in the months ahead will help the economy grow at faster levels.

Economists add that consumer confidence readings remain relatively strong, even with the April dip.

“In general, consumer sentiment and confidence indices have been erratic in recent months … but they remain at healthy levels,” Joshua Shapiro, chief U.S. economist at MFR Inc., wrote in a research note.

But some analysts expressed concern that the weak March result means there is little momentum going in to the second quarter.

Sal Guatieri, senior economist at BMO Capital Markets, said he expects consumer spending to moderately accelerate in the second quarter.

But weak data in areas such as factory orders and business investment had led him to trim his forecast for overall growth.

Guatieri said he now expects milder growth of 2.3 percent this quarter.

The Commerce income and spending report showed that spending on durable goods fell 0.6 percent in March, reflecting a big drop in auto sales.

Spending on nondurable goods, items such as clothing and food, rose 0.6 percent. Spending on services such as apartment rentals and utilities, rose 0.1 percent.

The big rise in incomes and the small gain in spending resulted in a jump in the personal saving rate to 5.4 percent of after-tax incomes, up from 5.1 percent in February.

The March level was the highest in a year and suggests that consumers have the resources to boost spending in coming months.

The overall economy, as measured by the gross domestic product, inched forward at an annual rate of just 0.5 percent in the first quarter, the slowest showing in two years.

Much of the result reflected the weakness in consumer spending.

Economists believe overall growth will rebound to around 2 percent in the current quarter and then strengthen to around 2.5 percent for the second half of the year.