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Growth in Consumer Spending Slows in April

From Associated Press

Consumer spending grew at a slower pace in April as income taxes absorbed a respectable gain in personal incomes, the government reported Friday.

Analysts contended the jump in tax payments was a one-time event and said spending, which shot up at an unsustainable pace in the January-March quarter, would continue at a moderate rate.

Consumer spending represents about two-thirds of the nation’s economic activity.

Meanwhile, financial markets remained nervous about the possibility of a Federal Reserve Board interest rate increase to keep the economy from overheating and inflation in check. Both stock and bond prices fell--the Dow Jones industrial average closed down 50.23 points at 5,643.18, pushing up the yield on benchmark 30-year Treasury bond to 6.99%.

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“What we saw in the first quarter was a strong gain in spending fueled by increased consumer confidence and refinancing of mortgages because of lower rates,” said economist Richard Berner of Mellon Bank in Pittsburgh.

“Now we’re seeing spending slowing somewhat to about 2.5% to 3%,” he said. “It’s moderating, but still healthy.”

After shooting up at a 3.6% annual rate in the first quarter, steepest in more than two years, spending edged up just 0.1% to start the second quarter, the Commerce Department said Friday.

At the same time, personal incomes rose 0.5% in April for the second consecutive month, fed in part by the end of the General Motors Corp. strike late in the previous month.

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Private wages and salaries, the most closely watched component of income, increased to $16.2 billion in April, up from $15.6 billion in March.

But disposable incomes--incomes after taxes--fell 0.5%, the steepest decline since a 4.1% drop in January 1994. A large increase in tax payments accounted for the decline.

The Commerce report noted that federal income tax receipts increased by about $50 billion in April, the deadline for the final payment of a retroactive tax increase for high-income taxpayers.

As a result, Americans’ saving rate--savings as a percentage of disposable income--was 3.7%, down from 4.4% in March and the lowest since a 3.4% rate in April 1994.

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But Mellon Bank’s Berner said, “It’s definitely a one-time event.”

Although at a slower pace, consumer spending increased in April for a third straight month, totaling $5.11 trillion at a seasonally adjusted annual rate. The 0.1% gain was the smallest since a 0.5% decline during January’s winter storms.

Personal incomes totaled $6.36 trillion at an annual rate, up from $6.33 trillion a month earlier. Incomes had jumped 0.8% in February, rebounding from the anemic, weather-related 0.1% advance a month earlier.

Spending on big-ticket durable goods--items such as automobiles and appliances expected to last more than three years--fell at a $19.8-billion annual rate in April, compared with a $2.9-billion drop a month earlier.

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But outlays for nondurable goods such as gasoline and groceries increased at a $12.9-billion rate, nearly twice as fast as the $6.6-billion gain a month earlier.

Spending on services including health care rose at an $11.7-billion rate, slower than the $23.7-billion gain in March.

The income and spending figures were not adjusted for inflation. When adjusted, disposable income fell 0.9% after edging up 0.1% the previous month and rising 0.5% in February. Spending fell 0.2% after March’s 0.3% advance.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

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Personal Spending

Trillions of dollars, seasonally adjusted annual rate:

April, 1996: $5.11

Source: Commerce Department

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Personal Income

Trillions of dollars, seasonally adjusted annual rate:

April, 1996: $6.36

Source: Commerce Department

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