US consumer spending surges in April; inflation heats up By Reuters

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. consumer spending increased more than expected in April, boosting the economy’s growth prospects for the second quarter, and inflation picked up, which could prompt the Federal Reserve to raise interest rates again next month.

The growth picture was further brightened by other data from the Commerce Department on Friday showing a surprise rebound last month in orders of manufactured non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans.

The reports added to labor market resilience, a rebound in factory production and pickup in business activity in suggesting that the economy was experiencing a spring revival after hitting a speed bump in the first quarter. They also increased the chances that the U.S. central bank would hike rates next month.

Minutes of the Fed’s May 2-3 policy meeting, which were published on Wednesday, showed policymakers “generally agreed” that the need for further rate hikes “had become less certain.”

“Companies and consumers are in agreement that there are plenty of green shoots to like at the start of springtime and right now the economy is miles and miles away from the cliffs of recession,” said Christopher Rupkey, chief economist at FWDBONDS in New York. “Fed officials won’t be able to pause their rate hikes, it looks like demand is picking up, not slowing down as it is supposed to do when the Fed hikes rates.”

Consumer spending jumped 0.8% last month. Data for March was revised up to show spending gaining 0.1% instead of being unchanged as previously reported. Economists polled by Reuters had forecast consumer spending, which accounts for more than two-thirds of U.S. economic activity, would rise 0.4%.

Consumers stepped up purchases of new light trucks and spent more on pharmaceutical products. Spending on goods rebounded 1.1% after two straight monthly declines.

Services outlays increased 0.7%, lifted by gains in financial services and insurance as well as healthcare, recreation and housing and utilities.

Last month’s surge in consumer spending tempered economists’ expectations for a sharp slowdown this quarter. Though consumer spending accelerated at its fastest pace in nearly two years in the first quarter, much of the growth was concentrated in January. Weakness in…