U.S. consumer spending dips in April

Americans cut back on spending in April after their income failed to grow, a sign that economic growth may be slowing.

Consumer spending dropped a seasonally adjusted 0.2 percent in April, the Commerce Department said yesterday. That was the first decline since last May. It followed a 0.1 percent increase in March and a 0.8 percent rise in February.

A drop in gas prices likely lowered overall spending. Adjusted for inflation, spending ticked up 0.1 percent last month. Still, that was the smallest gain since October.

Consumers also likely spent less to heat their homes last month, which may have reduced spending on utilities. April's weather was mild after an unusually cold March.

Income was unchanged last month, after a 0.3 percent rise in March and 1.2 percent gain in February. Wages and salaries barely grew, while government benefit payments fell.

The retrenchment in spending indicates consumers may be feeling the impact of higher taxes. But a separate report Friday showed consumer confidence rose to a six-year high in May, suggesting the decline in spending may be temporary.

Americans are taking home less pay this year because of a 2 percentage point increase in Social Security taxes. A person earning $50,000 a year now has about $1,000 less to spend.

Income taxes on the wealthiest Americans also increased.

Consumer spending drives 70 percent of economic activity. It grew at the fastest pace in more than two years from January through March, helping the economy expand at a 2.4 annual rate during that quarter.

Economists said the latest spending figures suggest growth may be slowing in the April-June quarter to around a 2 percent rate. But most still expect growth to improve slightly after that, as the impact of tax hikes and government spending cuts fades.

"Overall, a sobering report for those expecting . . . growth to accelerate sharply," said Paul Ashworth, chief U.S. economist at Capital Economics.