Consumer spending dips, savings rate surges-WEB ONLY

Frugal consumers trimmed spending in April – although by less than expected – as rising unemployment kept pocketbooks in check.

With income growth far outpacing spending, Americans’ personal savings rate zoomed to 5.7 percent, the highest since February 1995, the Commerce Department reported today.

Consumer spending dipped 0.1 percent in April. That was slightly less than the 0.2-percent reduction economists were expecting, although it marked the second straight month that consumers cut back. The pullback came after a burst of buying at the start of the year as shoppers took advantage of deeply discounted merchandise and other promotion.

Americans’ incomes – the fuel for future spending – jumped by 0.5 percent, following two straight months of declines. The improvement in April was partly due to tax cuts and benefit payments flowing from President Barack Obama’s stimulus package, the government noted. Wages and salaries, however, were flat in April.

The growth in incomes – the most since May 2008 – surprised economists. They were forecasting a 0.2-percent decline.

While the savings rate was the highest since February 1995, the level of savings – $620 billion – was the most on records dating back to January 1959.

It reflects a more thrifty consumer whose wealth – notably nest eggs, investment holdings and home values – has been hard hit by the recession. It also reflects consumers being more cautious given rising unemployment.

The nation’s unemployment rate jumped to 8.9 percent in April, the highest in 25 years. Economists predict the jobless rate climbed to 9.2 percent in May as employers cut 523,000 jobs. The government releases the employment report on Friday. Since the start of the recession in December 2007, the economy has lost 5.7 million jobs.

Consumer spending accounts for roughly 70 percent of overall economic activity and is closely watched by economists. Most economists believe consumers in the April-to-June quarter will hold tighter to their wallets than they did in the first three months of this year.

In the first quarter, consumer spending rose at a 1.5-percent pace. It wasn’t a shopping spree by any means but it marked a big improvement from the final quarter of last year when recession-battered consumers slashed spending at a 4.3 percent pace, the most in 28 years.