US personal income and spending slide- New jobless claims eased last week

US personal income and spending slide- New jobless claims eased last week
By Alan Rappeport in New York
Copyright The Financial Times Limited 2009
Published: April 30 2009 16:22 | Last updated: April 30 2009 16:22
http://www.ft.com/cms/s/0/afca7b6a-3599-11de-a997-00144feabdc0.html


US consumer spending slipped for the first time in three months in March as incomes fell back and people saved more while they coped with the recession and fears of rising job cuts.

Personal consumption expenditure fell by 0.2 per cent to $24.2bn, more than economists expected, according to commerce department figures. This followed a revised increase of 0.4 per cent in February. In the first quarter of this year consumption rose at an annualised rate of 2.2 per cent, but much of this was due to cheaper petrol and a boost from tax rebates.

Incomes fell back for the third straight month in March, declining by 0.3 per cent to $34.4bn. Job cuts, pay freezes and eliminated bonuses have savaged salaries in recent months.

The commerce department’s closely-watched gauge of prices slipped by 0.1 per cent in March, but was up by 0.2 per cent excluding food and energy for the second month running.

Meanwhile the savings rate, which is measured as the proportion of income left after spending and taxes, rose to 4.2 per cent from a revised 4.0 per cent in March. Economists at Capital Economics predict that the savings rate could reach 8 per cent as household wealth has collapsed.

“Looking forward, another steep drop in employment is on the way for April and we expect consumers to stay cautious,” said Nigel Gault, chief US economist at IHS Global Insight.

New US jobless claims surprisingly eased last week, declining by 14,000 to 631,000. However labour department figures showed that those making continuing claims rose to 6.27m, a fresh record high.

Economists took hope that the four-week moving average for new claims was 637,250, a 3.3 per cent decline over the last three weeks.

“A decline in the four-week average of claims is important because the peak in claims always comes around the end of a recession,” said Abiel Reinhart, economist at JPMorgan Chase.

Some economists expect the unemployment rate, which rose to 8.5 per cent last month, to reach 9 per cent in April. Official figures on Wednesday showed that the US economy contracted at an annualised rate of 6.1 per cent in the first quarter, after declining by 6.3 per cent during the fourth quarter of last year.