Consumer spending fell in April; first drop in nearly a year

WASHINGTON -- Americans cut back on their purchases in April for the first time in nearly a year as their income remained flat, a potentially bad sign for an economy that depends heavily on consumer spending.

Consumer spending dropped 0.2% last month, and March's initially reported increase was cut in half to a revised 0.1%, the Commerce Department said Friday.


Personal income failed to grow for the first time since falling 4.4% in January.

Analysts had expected consumer spending to be unchanged last month and that personal income would rise 0.1%.

Falling gas prices in April were part of the reason for the drop in spending. Purchases of gas, electricity and other energy goods and services dropped 4.4%.

Excluding volatile energy and food prices, spending was unchanged last month after a 0.1% increase in March.

Consumers are a crucial factor in U.S. economic growth, and April's drop signals the second-quarter slowdown most economists have projected as automatic federal budget cuts begin taking place.

Consumer spending increased at a 3.4% annual rate in the first three months of the year, nearly double the pace of the fourth quarter, the Commerce Department reported on Thursday.

That spending helped the U.S. economy grow at a 2.4% annual rate in the first quarter despite higher taxes and the looming threat of federal spending cuts.

Lower energy costs helped keep inflation in check last month.

The Commerce Department's personal consumption expenditure price index dropped 0.3% in April after dropping 0.1% the previous month.

The core price index, which factors out energy and food costs, was up less than 0.1% in April compared to an increase of 0.1% in March.

Year over year, the core price index, a key measure of annual inflation, was up just 1.1% in April. That's well below the Federal Reserve's 2% target.

Consumers continued to save in April at the same 2.5% rate as the previous month.