WASHINGTON – Consumer purchases rose less than forecast in April as food and fuel prices climbed, and pending sales of existing houses plunged, showing the economy was struggling to strengthen at the start of the second quarter.

Household spending rose 0.4 percent after a revised 0.5 percent March gain that was smaller than previously estimated, Commerce Department figures showed Friday in Washington. The number of Americans signing contracts to buy previously owned homes fell 12 percent last month, the second-biggest drop in a decade’s worth of records.

Walmart Stores is among retailers feeling the pinch as higher grocery and energy bills force households to dip into savings or cut back on less essential items. Another report showing that consumer sentiment improved this month indicates job gains and the recent drop in gasoline prices are helping ease anxiety and may help revive demand next quarter.

“As long as gas prices come down and jobs numbers continue to print strongly as they have been, then this concern about the consumer may also ebb,” said Jonathan Basile, a senior economist at Credit Suisse in New York. “Spending is soft as you start the second quarter, but consumer sentiment suggests things may turn as we hit the third quarter.”

The median forecast of 81 economists surveyed by Bloomberg News projected consumer spending would rise 0.5 percent last month. Estimates ranged from gains of 0.3 percent to 0.6 percent after a previously reported 0.6 percent gain the prior month.

The report also showed incomes climbed 0.4 percent in April for a second month, matching the median forecast. The Commerce Department revised the March reading from a previously reported 0.5 percent gain.

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Disposable income, or the money left over after taxes, was little changed for a second month after adjusting for inflation. The savings rate held at 4.9 percent, matching the March reading as the lowest since October 2008.

“When you account for higher food and energy prices, there’s barely anything left,” said Mark Vitner, a senior economist at Wells Fargo Securities in Charlotte, N.C., who accurately forecast the April gain in spending. “We need to see job growth pick up, and we need to see commodity prices continue to cool.”

The report’s inflation gauge tied to spending patterns increased 2.2 percent from April 2010, the biggest 12-month gain in a year. The Federal Reserve’s preferred price measure, the so-called core inflation reading that excludes food and fuel, rose 1 percent in April from a year earlier, the most since September.

Sales at U.S. Walmart stores open at least a year dropped 1.1 percent in the first quarter, the eighth decline in a row, the world’s largest retailer said last week. Customers are still struggling with economic uncertainty, buying more generic items rather than their more costly name-brand counterparts, executives said in a May 17 pre-recorded call.

“A good portion of income was being gobbled up by inflation,” said Ken Mayland, president of ClearView Economics in Pepper Pike, Ohio. Next quarter, “prices might come down and give consumers a little more wiggle room.”

After surging to an almost three-year high of $3.99 per gallon nationally May 4, average gasoline prices have since retreated. They dropped to $3.81 a gallon Thursday, according to AAA, the nation’s biggest motoring organization.

The drop in gas prices, along with an improving job market, may be helping boost confidence. The Thomson Reuters/University of Michigan final index of consumer sentiment for May increased to a three-month high of 74.3 from 69.8 in April, the group said Friday. The index averaged 89 in the five years leading up to the recession that began in December 2007.

Employers added workers for a seventh consecutive month in April. Payrolls expanded by 244,000, the biggest gain since May 2010, while the jobless rate rose to 9 percent, the Labor Department said May 6.

 


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