U.S. consumer spending fell in April for a second straight month as concern over rising unemployment prompted consumers to save. The 0.1 percent drop in purchases was smaller than forecast and followed a 0.3 percent decrease in March that was larger than previously estimated, the Commerce Department said today in Washington. The savings rate jumped to the highest level in 14 years. Household spending, which accounts for 70 percent of the economy, is likely to falter again this quarter even as confidence improves, extending the worst recession in half a century. Still, signs that other areas, such as housing and manufacturing, are steadying, signal the economic slump will ease as the year progresses. ``Consumers feel better about the economy but their spending has yet to catch up and it's unclear it will because income is under pressure,'' Jonathan Basile, an economist at Credit Suisse Holdings Inc. in New York, said before the report. Economists forecast spending would fall 0.2 percent, according to the median of 63 projections in a Bloomberg News survey. Estimates ranged from a drop of 0.3 percent to a gain of 0.2 percent. Incomes climbed 0.5 percent, the biggest gain in almost a year, reflecting increases in unemployment insurance benefits and social security payments associated with the Obama administration's stimulus plan. Income was projected to also fall 0.2 percent, matching the March decrease. Job Losses Wages and salaries were unchanged in April as job losses mounted. Pay fell 0.6 percent the prior month. The savings rate surged to 5.7 percent in April, the highest level since February 1995, from 4.5 percent the prior month as consumers cut back. The higher the rate, the more consumers are saving. The world's largest economy has lost 5.7 million jobs since the recession began in December 2007, the biggest employment slump of any downturn. The unemployment rate, already at a 25- year high of 8.9 percent in April, may still average 9.6 percent in 2010, according to economists surveyed earlier this month. Today's report also showed inflation eased. The price gauge tied to spending patterns climbed 0.4 percent from April 2008, compared with a 0.6 percent increase in the year ended in March. The Federal Reserve's preferred measure, which excludes food and fuel, increased 0.3 percent, after a 0.2 percent increase a month before, and was up 1.9 percent from a year earlier. Less Spending Adjusted for inflation, spending decreased 0.1 percent following a 0.3 percent drop the prior month. Disposable income, or the money left over after taxes, jumped 1.1 percent. Tax cuts enacted by the Obama administration as part of its economic stimulus package took effect April 1, helping to boost the figures. Automakers are among industries suffering most from the cutbacks in spending. General Motors Corp. today filed for bankruptcy protection and will sell most of its assets to a new company. It follows Chrysler LLC, which filed in April. The uncertainty surrounding the car companies may be one reason consumers are unwilling to spend. Once the bankruptcies are settled, Americans may step up purchases again. ``There will be more visibility for consumers who want to buy a car or a truck once these bankruptcy proceedings are behind us,'' Jonathan Basile, an economist at Credit Suisse Holdings Inc. in New York, said before the report. ``It makes it difficult for consumers to come to a spending decision when you're not sure that the maker of something you're going to buy is going to be there.'' GDP The economy shrank at a 5.7 percent pace in the first quarter, the government said last week. While that was less than previously estimated, it capped the worst six-month performance in five decades. Costco Wholesale Corp. the largest U.S. warehouse-club chain, said May 28 that third-quarter profit fell 29 percent, partly because consumers cut spending. Chief Financial Officer Richard Galanti said sales of goods other than food have waned. The retailer suffered from ``ongoing weakness in sales, particularly sales of higher-ticket, discretionary items,'' Galanti said. Still rising stock prices are making Americans less pessimistic. Confidence jumped in May by the most in six years, the New York-based Conference Board reported last week. The Reuters/University of Michigan's index also climbed. Dell Inc. Chief Executive Officer Michael Dell said last week he expects customers to replace aging computers in 2010 after Microsoft Corp. releases Windows 7 and Intel Corp. introduces faster chips for the machines.

Source