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US consumer spending posts drop in April

UNITED States consumer spending fell in April from March, despite personal income posting the largest increase in 11 months, a government report said yesterday, showing activity in the second quarter getting off to a slow start.

The Commerce Department said spending slipped 0.1 percent after a revised 0.3 percent fall in March. That was slightly better than market expectations for a 0.2 percent fall in spending.

US stock index futures extended gains while US Treasury debt prices were steady at lower levels. The US dollar pared losses versus the euro and yen.

A government report last Friday showed consumer spending - which accounts for over 70 percent of economic activity - rose at a 1.5 percent annual rate in the first quarter of the year, but slower than the 2.2 percent increase the department had previously estimated. Consumption plunged in the second half of last year.

Personal income rose 0.5 percent, the biggest rise since May last year, after falling by a revised 0.2 percent in March. Analysts polled by Reuters had forecast income to fall 0.2 percent in April.

Disposable income surged 1.1 percent in April, boosted by tax cuts and increased social benefit payments under the government's record US$787 billion stimulus package, the department said. Excluding the stimulus package, disposable income gained 0.7 percent in April.

"The income data was skewed by the stimulus, where unemployment insurance was accelerated and extended. If you take that out it doesn't look as good as it seems," said Peter Boockvar, equity strategist at Miller Tabak & Co in New York.

Savings jumped to a record annual rate of US$620.2 billion. The savings rate rose to 5.7 percent in April, the highest level since February 1995, from 4.5 percent the previous month.

Households, buffeted by job losses and falling asset values, are cutting spending on nonessential items, preferring to save any extra income.

Inflation nudged up in April, with the personal consumption expenditures price index, excluding food and energy, at 1.9 percent on a year-on-year basis from 1.8 percent in March.


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