Personal incomes see best gains in months

WASHINGTON -- Personal incomes rose in April at the fastest pace in five months , helped by a big jump in employment, while consumer spending slowed a bit, the government reported Friday.

The Commerce Department said incomes rose by 0.7 percent last month, the best performance this year. Analysts said it reflected the strong gain of 274,000 jobs last month and a rise in the workweek, which both boosted private wage growth.

Consumer spending rose by a lower-than-expected 0.6 percent in April but the government revised the March gain to a stronger 0.9 percent, up from the 0.6 percent increase that had been originally reported for March.

Energy bill woes

In other economic news, the University of Michigan index of consumer sentiment fell to 86.9 in May, down from 87.7 in April. It was the lowest monthly reading in two years and was blamed on consumer unhappiness with rising energy bills.

But with gasoline prices retreating from their earlier highs, analysts said consumer sentiment may start to perk up. And in any event, they noted that their desire to spend remains strong, as evidenced by the gains in consumer spending over the past three months.

"Consumers may not be as confident as they had been, but that isn't keeping them from spending," said David Wyss, chief economist at Standard & Poor's in New York. "Americans seem to have the idea that when you have a lot of stress, retail therapy is the cure."

On Wall Street, stocks finished up in light trading. The Dow Jones industrial average closed up 4.95 points at 10,542.55.

The report on spending and incomes showed that inflation pressures remained contained with an inflation gauge preferred by the Federal Reserve that excludes energy and food showing a 0.1 percent increase in April, the smallest monthly increase since December and a significant slowdown from a 0.3 percent jump in March. This inflation gauge showed a moderate increase of 1.6 percent over the past 12 months, within the Fed's comfort zone for inflation.

Sheryl King, an economist at Merrill Lynch in New York, said the consumer price index was "yet another indication that inflationary pressures at the consumer level are starting to abate."

Analysts said the solid gains in incomes and consumer spending provided further evidence that the economic slowdown shown by several weaker-than-expected reports in March proved to be short-lived.

The government reported on Thursday that the economy grew at an annual rate of 3.5 percent in the January-March quarter, a significant upward revision from the original estimate a month ago of 3.1 percent growth, which would have been the slowest performance in two years.

Wyss said he now believed that the economy would grow at a similar 3.5 percent rate in the current quarter and also expand 3.5 percent for the whole year. That would compare to 4.4 percent growth in the gross domestic product last year, the best showing in five years.

"We expect a good year economically with 3.5 percent growth and 2 percent inflation" outside of energy and food, Wyss said. "That's just about ideal."

Disposable incomes, the amount that people have left to spend after paying taxes, rose by 0.5 percent in April, up slightly from two months of 0.4 percent gains.

Even with that increase, the personal savings rate dipped 0.4 percent in April, the lowest level in more than three years. It was the first time that the savings rate fell into negative territory since it came in at minus 0.2 percent in October 2001 during the country's last recession.