Consumers cautious about spending in April

WASHINGTON - Consumers don't appear confident enough in the economy to open their wallets more freely.

Their spending stalled in April, the Commerce Department reported Friday. Without stronger job creation and higher pay, people are less likely to up their spending in the months ahead and invigorate the recovery.

The flat level for consumer spending was the weakest showing in seven months, according to the report, and came after a 0.6 percent rise in March. Personal incomes rose 0.4 percent, in line with expectations but not fast enough to help generate real growth.

Falling gas prices and cheaper utility bills could make people feel better about spending more over the summer. So could historically low mortgage rates. That would lead more people to refinance and leave them with more disposable income.

But Nigel Gault, an economist at IHS Global Insight, said employment will be key to supporting income growth in coming months.

"The consumer needs sustainable income support, so employment reports, including next Friday's, will be key signals of just how robust consumption will be over the rest of 2010," Gault said.

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

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.

Tame inflation could encourage more spending. Prices did not increase in April and are up just 2 percent over the past 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 past year.

In the meantime, more people are holding on to their money. The savings rate rose 3.6 percent in April.