WASHINGTON -- U.S. consumer spending fell for the first time in a year in April after two months of solid gains, but the decline is likely temporary given a strengthening jobs market.
The Commerce Department said Friday consumer sentiment slipped 0.1 percent, which was the first decline since April 2013. But the drop followed an upwardly revised 1 percent jump in March that was the largest gain since August 2009.
"The disappointing spending report should be viewed in the context of a stronger handoff into the second quarter," said Gennadiy Goldberg, an economist at TD Securities in New York. "We look for ongoing labor market progress to encourage further growth in consumer spending."
%VIRTUAL-article-sponsoredlinks%Last month's decrease, which was driven by weak spending on durable goods and utilities, didn't change expectations economic growth would top a 3 percent annual pace this quarter after output shrank in the first three months of the year.
A separate report showed consumer sentiment slipped in May as households worried about income, but that too was viewed as temporary in light of the steady labor market improvement.
The Thomson Reuters/University of Michigan's consumer sentiment index fell to 81.9 in May from 84.1 in April, but was up slightly from earlier in the month.
Another report from the Institute for Supply Management-Chicago showed factory activity in the U.S. Midwest reached its highest level in seven months in May, boosted by a surge in new orders. Order backlogs jumped to a three-year high and inventories rose for a second consecutive month.
"It provides more evidence that the economy and manufacturing are in an upswing, and points to rising employment," said John Ryding, chief economist at RDQ Economics in New York.
U.S. Treasury debt prices fell on the mixed data, while the dollar slipped against a basket of currencies. U.S. stocks were slightly lower.
Inflation Creeping Up
The report on consumer spending provided the latest evidence that inflation was starting to stir.
Prices rose 0.2 percent in April, pushing the year-on-year reading up to 1.6 percent -- the largest gain since November 2012. It had advanced 1.1 percent in March.
Excluding food and energy, prices increased 0.2 percent. These so-called core prices were up 1.4 percent from a year ago, the biggest increase since March 2013.
The pickup is welcome news for Federal Reserve officials, who have been worried that inflation was running so far below the central bank's 2 percent target.
Weak medical care costs has kept inflation down but that anchor is slipping away. Economists say a rise in those costs plus increasing rents should lift inflation this year and pave the way for an interest rate hike from the Fed.
"We believe the inflation backdrop will keep the Fed on a gradual path to normalization and look for the first rate increase in June 2015," said Michael Gapen, an economist at Barclays in New York.
The Fed has held benchmark overnight interest rates near zero since December 2008.
The 20 Best Financial Lessons I Learned in My 20s
Consumer Spending Slips in April, Inflation Creeps Up
What's going to give you more pleasure –- a new flat-screen TV or an out-of-the-country trip with friends or family? I've learned to choose experiences and memories over designer goods and technology.
This is a standard lesson. It's never too early to start saving for retirement. Start putting away small amounts monthly into a Roth Individual Retirement Account today, and automatically to set yourself up for success tomorrow.
Nobody will look out for you like you look out for you. If you want something, be proactive. Work for it, ask for it and make a plan to get there.
Whether you're giving your time or your earnings, donating in service to others provides opportunity for connection, growth and learning -- and it can be downright humbling.
It's up to you to decide if it's for better or worse. But communication is key and money should be handled by both of you together, not handed off to one partner.
Student loans are a lot more manageable if you start dealing with the accruing interest while you're in college. This will help keep your payments lower, and ensure that you're putting a bigger chunk towards principal upon graduation.
In the event of a car accident, having the right documents and insurance in place will make it easier on you, your family and your loved ones.
Having a savings account to handle surgeries, object removals and stitches can save your credit card the burden.
Check your score annually using a website like annualcreditreport.com and make note of steps you can take to improve it.
Whether it's for bill payments, financial deadlines, interviews or travel. Plan to show up or pay early. This adds an extra layer of time protection against unforeseen circumstances, and it prevents late fees, change fees and just plain looking bad.
Learn to use credit wisely. Don't carry a balance on credit cards unless you understand the true cost of the interest.
Whether it's a new job, an upgraded car, some type of advanced technology or a consulting fee, do your research and know where the market is priced. Look online for rates, discounts (for products) and don't be afraid to ask to be paid more or to pay less. The worst that can happen is you'll be told "no." The best that can happen is that you'll earn or save more.
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This is just a fact of life, and why I subscribe to the lifelong learning model.
When it comes to money, all work and no play makes it hard to stay motivated on the road to financial freedom. Taking time to celebrate the small wins along the way makes the journey much more enjoyable.
Quantifying goals -- by making them Specific, Measurable, Attainable, Relevant and Timely -- helps to keep you accountable and invested in your progress.