Consumers grow more cautious on spending

WASHINGTON - Consumer spending was stagnant in April while incomes posted a tiny advance, signs that the economic recovery could slow.

The flat spending was the weakest showing in seven months, according to a Commerce Department report Friday. Personal incomes rose 0.4 percent, in line with expectations but not fast enough to help generate real growth.

More people are holding on to their money, the report noted. The savings rate rose by 3.6 percent in April. The rate had fallen to 3.1 percent in March, the lowest since October 2008.

Consumer spending is closely watched because it accounts for 70 percent of total economic activity.

The unchanged level of spending came after a 0.6 percent rise in March.

An early Easter holiday this year and attractive incentives from automakers contributed to the March increase in consumer spending.

Major retailers reported solid first-quarter earnings as consumers have opened their wallets more in the early months of 2010. But executives said they were cautious given the economic uncertainties.

Business in May is below expectations because of cool weather and swings in the stock market, according to the International Council of Shopping Centers.

"It's still a very volatile consumer environment," Glenn Murphy, chief executive of Gap Inc., told investors during a conference call late last week. "I'm finding . . . that it's just very difficult to predict patterns, week to week, weekday to weekends."

Target chairman and chief executive Gregg Steinhafel said last week he expected turbulence throughout the rest of the year.

"There's going to be good months, bad months and some ups and downs," he said, "and I think we're seeing an environment where that kind of volatility and unpredictability is just playing out in the consumer environment."

Even with the flat reading for April, economists expect consumer spending to grow at a respectable pace of about 3 percent in the current quarter. That would be down from spending growth of 3.5 percent in the first three months of the year, the strongest level in three years.

"The fall in energy prices and a surge in mortgage refinancing has left households with more cash to spend on other items," said Paul Dales, U.S. economist at Capital Economics.

Tame inflation also could encourage more spending. Prices did not increase in April and are up just 2 percent over the last year, according to an inflation measure tied to consumer spending. When excluding food and energy costs, prices were up just 1.2 percent in the last year.

The rise in incomes followed a similar jump in March. A pickup in wages and salaries are being helped by increases in payroll employment.