The economy's near-term prospects also brightened after data showed the goods trade deficit narrowed last month.
A person shops in a supermarket in Manhattan, New York City, U.S., March 28, 2022. REUTERS/Andrew KellyConsumer spending increases 0.9% in AprilCore PCE price index gains 0.3%; up 4.9% year-on-yearWASHINGTON, May 27 - U.S. consumer spending rose more than expected in April as households boosted purchases of goods and services, and the increase in inflation slowed, which could underpin economic growth in the second quarter amid rising fears of a recession.
Goods spending increased a solid 0.8%, driven by new motor vehicles, clothing, footwear, recreational goods as well as furnishings and household equipment. Demand for goods remains strong even as spending on services is picking up. Personal income rose 0.4%, with wages accounting for the bulk of the increase. The saving rate dropped to 4.4%, the lowest since September 2008, from 5.0% in March. That suggests households have been tapping into the more than $2 trillion in excess savings accumulated during the COVID-19 pandemic.
The Federal Reserve's hawkish monetary policy stance as it fights to quell high inflation and bring it back to its 2% target has fanned worries of a recession. Fears of an economic downturn have also been exacerbated by Russia's dragging war against Ukraine as well as China's zero COVID-19 policy, which have further entangled supply chains.
Excluding the volatile food and energy components, the PCE price index gained 0.3%, rising by the same margin for three straight months. The so-called core PCE price index increased 4.9% year-on-year in April, the smallest gain since last December, after rising 5.2% in March. The moderation in inflation bodes well for GDP growth this quarter. When adjusted for inflation consumer spending increased 0.7% in April after rising 0.5% in the prior month.
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