 "Cautious consumers cast doubt on US growth outlook")
US consumer spending growth unexpectedly stalled in April as households cut back on purchases of automobiles and continued to boost savings, suggesting the economy was struggling to gain momentum early in the second quarter.
But after a slump in economic growth in the first quarter, there are signs of a rebound, with other reports on Monday showing manufacturing activity picked up in May for the first time in seven months and construction spending surged in April to a near 6-1/2-year high.
Still, sluggish consumer spending growth this year and muted inflation pressures suggest the Federal Reserve may not raise interest rates until later this year.
The Commerce Department said April's unchanged reading in consumer spending growth compared with analysts' forecasts for a 0.2% rise and followed a 0.5% increase in March.
Consumer spending, which accounts for more than two-thirds of US economic activity, was also curbed by weak demand for utilities such as electricity and natural gas as temperatures warmed up.
The core personal consumption price index (PCE), the Federal Reserve's preferred inflation gauge, edged up 0.1% in the 12 months to April, the smallest gain since October 2009, after rising 0.3% in March.
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Excluding food and energy, the core PCE price index increased 1.2% from a year ago after being up 1.3% in March.
MANUFACTURING AND CONSTRUCTION GROWING
In a separate report, the Institute for Supply Management said its national factory activity index rose to 52.8 last month from 51.5 in April.
The index had been declining since November as manufacturing battled a strong US dollar and deep spending cuts in the energy sector in response to a plunge in crude oil prices in the past year. A reading above 50 indicates expansion in the manufacturing sector, which accounts for about 12% of the US economy.
The index, which was also restrained by labour disruptions at the West Coast ports, was boosted by a surge in new orders and factory employment.
"The construction and manufacturing data cast a bit of sunshine on an otherwise cloudy day for economic data. We need to see more of a rebound in growth before the Fed pulls the trigger on interest rates," said Diane Swonk, chief economist at Mesirow Financial in Chicago.
However, another survey from financial data firm Markit showed factory activity improved towards the end of May.
"After transitory weakness in the first quarter, the manufacturing outlook has improved. But the dollar and lower oil prices continue to be a drag on some select industries," said John Silvia, chief economist at Wells Fargo Securities in Charlotte, North Carolina.
The US dollar firmed against major currencies on Monday, while yields on US government bonds rose. US stocks ended modestly higher.
In other data published Monday, the Commerce Department said construction spending jumped 2.2% to an annual rate of $1.0 trillion, the highest level since November 2008. The% increase was the largest since May 2012 and reflected broad gains in both private and public outlays.
GROWTH FORECASTS RAISED
Gross domestic product contracted at a 0.7% annual rate in the first three months of the year.
But given that a confluence of temporary factors conspired to depress the output figure in the first quarter, including a problem with the model the government uses to smooth seasonal fluctuations, the decline in GDP likely overstates the economy's weakness, and more recent data has lead some analysts to raise their economic growth forecasts.
Forecasting firm Macroeconomic Advisers on Monday raised its second-quarter GDP growth estimate by four-tenths of a%age point to a 2.0% rate on the construction report.
Morgan Stanley lifted its estimate to a 2.1% rate from a 1.6% pace, while Goldman Sachs bumped up its estimate by one-tenth of a point to a 2.5% rate.
The manufacturing and construction reports on Monday, combined with data on business spending plans, employment and housing in recent weeks, suggested some momentum in the economy even though consumer spending and industrial production have been soft.
The weakness in consumer spending is puzzling some analysts given that wages are rising and households accumulated hefty savings from cheaper gasoline.
"Most likely, Americans are using their pump price savings to pay down debt, increase the money they put aside and for dining out," said Chris Christopher, an economist at IHS Global Insight in Lexington, Massachusetts.
In April, personal income rose 0.4% and the saving rate increased to 5.6% from 5.2% in March, according to the Commerce Dept on Monday.