Consumer Spending Slows Down

Consumer spending grew at a slower pace in April as income taxes absorbed a respectable gain in personal incomes, the government reported Friday.

Analysts contended the jump in tax payments was a one-time event and said spending, which shot up at an unsustainable pace in the January-March quarter, would continue at a moderate rate.

Consumer spending represents about two-thirds of the nation’s economic activity.

Financial markets remained nervous about the possibility of a Federal Reserve interest rate increase to further curb economic growth and prevent any increase in inflation. Stocks sank, with the Dow Jones industrial average losing 50.23 points. Bonds also were lower.

“What we saw in the first quarter was a strong gain in spending fueled by increased consumer confidence and refinancing of mortgages because of lower rates,” explained economist Richard Berner of the Mellon Bank in Pittsburgh.

“Now we’re seeing spending slowing somewhat to about 2.5 to 3 percent,” he added. “It’s moderating, but still healthy.”

After shooting up at a 3.6 percent annual rate in the first quarter, steepest in more than two years, spending edged up just 0.1 percent to start the second quarter.

At the same time, personal incomes rose 0.5 percent in April for the second consecutive month.

Private wages and salaries increased to $16.2 billion in April, up from $15.6 billion in March.

But disposable incomes - after taxes - fell 0.5 percent, the steepest decline since January 1994. A large increase in tax payments accounted for the decline.

Other economic news last week:

Reports of increased economic growth, strong homes sales and shrinking business inventories intensified concerns that the Federal Reserve may have to raise interest rates, perhaps as soon as its next policy meeting in early July, to keep growth from heating up inflation.

“We’re going to get very strong second-quarter economic growth, and it does mean the Fed may have to tighten sometime this summer” by raising rates, said Michael Strauss, chief economist at Yamaichi International (America).