Americans cut back on spending in April after their income failed to grow, a sign economic growth may be slowing.
The Commerce Department said today that consumer spending dropped a seasonally adjusted 0.2% in April, the first decline since last May.
That follows a 0.1% increase in March and a 0.8% jump in February. Adjusted for inflation, spending ticked up 0.1% last month.
A drop in petrol prices likely lowered overall spending. But income was unchanged last month, after a 0.3% rise in March and 1.2% gain in February.
The retrenchment in spending suggests consumers may be starting to feel the impact of higher taxes. An increase in Social Security has reduced take-home pay for nearly all consumers who draw a paycheck. A person earning $50,000 a year has about $1,000 less to spend this year because of the increase in Social Security taxes - a household with two high-paid workers has up to $4,500 less.
Consumer spending drives 70% of economic activity in the US.
The fastest growth in spending in more than two years helped the economy expand at a 2.4% annual rate in the first quarter, much faster than the 0.4% rate from October to December. But many economists now believe growth is slowing to a pace of around 2%.
A decline in petrol prices may have played a part in reducing spending in April because the figures are not adjusted for inflation. Petrol prices tumbled in March and April after peaking in late February.
Improvement in hiring, rising home prices and strong stock gains could make consumers more willing to spend later this year.
Home prices, meanwhile, have surged nearly 11% in the past year. Rising prices tend to make homeowners feel wealthier and more likely to shop.
Some economists estimate that for every dollar increase in home values, consumer spending can rise as much as 10 cents.
