-Sal Guatieri, a senior economist at BMO Capital Markets
Consumers spending in the world's largest economy unexpectedly dropped last month, as personal income stagnated, putting the biggest part of the economy on shaky ground at the beginning of a year. On Friday, the Commerce Department said that household purchases, which accounts around 70% of economic output, unexpectedly tumbled 0.2% in April, after a 0.1% gain in the preceding month that was smaller than initially predicted.
When being adjusted for inflation, spending nudged up only 0.1%, after a 0.2% increase a month earlier. Even as it was sixth straight month of gains in the so-called real consumer spending, a key inflation gauge fell in April by the most since July 2012, dragged down by declining gasoline prices. This modest increase is indicating that consumer spending may slow in the second quarter.
During the last 12 months, consumer prices rose only 0.7%, the smallest gain since October 2009, remaining below the Fed's 2% target. The index had added just 1.0% in the period through March. As consumers are showing unwillingness to increase their spending, due to the recent austerity measures implemented by the government, the experts are raising concerns whether the U.S. central bank might start scaling back monetary easing later this year
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