Americans spending a bit more as gas prices fall

Gas prices are dis­played at a Shell sta­tion in Beaver­ton, Ore. Gas prices are begin­ning to fall, after a four-month surge pushed gas to nearly $4 per gal­lon ear­lier this month. The price of gaso­line in the U.S. has dropped by nearly 8 cents per gal­lon since the first week of April fol­low­ing a decline in oil prices and gaso­line con­sump­tion. Amer­i­cans’ con­fi­dence in the econ­omy held steady in April from the pre­vi­ous month despite ris­ing job cuts and falling home val­ues. (Asso­ci­ated Press | Don Ryan)

CHRISTOPHER S. RUGABER

AP Eco­nom­ics Writers

WASHINGTON — Amer­i­cans are start­ing to see some relief from higher gas prices, a change that could revive the econ­omy in the months ahead.

Con­sumer prices were flat in April, largely because of a decline in gas prices. Lower prices at the pump may be com­bin­ing with steady job growth to power more spend­ing on big purchases.

Sales of autos, fur­ni­ture and elec­tron­ics all rose in April. And Amer­i­cans spent more at restau­rants and bars — gen­er­ally a sign of con­fi­dence in the economy.

“Con­sumer spend­ing looks to have started the sec­ond quar­ter on a solid foot­ing,” said Paul Ash­worth, an econ­o­mist at Cap­i­tal Economics.

Despite the strength in key areas, over­all retail sales increased just 0.1 per­cent last month, the Com­merce Depart­ment said Tues­day. That mod­est gain fol­lowed two stronger months in Feb­ru­ary and March.

Cheaper gas off­set some of the gains in big pur­chases. The mild win­ter was also a fac­tor. In the pre­vi­ous two months, it boosted sales in areas such as build­ing mate­ri­als and gar­den­ing sup­plies. Spend­ing in those cat­e­gories fell sharply in April.

Still, econ­o­mists were encour­aged by the details in the report. Exclud­ing autos, gas sta­tion sales and spend­ing on build­ing mate­ri­als, so-called core retail sales increased 0.4 per­cent, a mod­est gain.

“All the cat­e­gories that showed gains are pos­i­tive signs for con­sumer spend­ing going for­ward,” said Leslie Levesque, senior econ­o­mist at IHS Global Insight. “The cat­e­gories where there were declines were mainly a pay­back for the warmer weather.”

Recent job growth has con­tributed to higher con­sumer con­fi­dence. Employ­ers have added 1 mil­lion jobs in the past five months, though the pace of gains has slowed recently.

Another rea­son to be opti­mistic: gas prices are falling after spik­ing ear­lier this year. The national aver­age dropped to $3.73 per gal­lon on Tues­day, about 17 cents cheaper than a month ago, accord­ing to a sur­vey by AAA. Sales at gas sta­tions fell 0.3 per­cent in April.

“We had expected gas prices to be ele­vated until Memo­r­ial Day,” Levesque said. “The fact that they have already retreated so much is a very good sign. It alle­vi­ates the strain on con­sumers’ pockets.”

Cheaper gas also kept infla­tion tame. Gas prices fell a sea­son­ally adjusted 2.6 per­cent in April, the Labor Depart­ment said. That off­set mild increases in the cost of food, hous­ing, and clothes.

Over­all, the con­sumer price index was flat. Exclud­ing volatile food and gas costs, so-called “core” prices rose 0.2 percent.

In the past 12 months, prices have risen 2.3 per­cent, the small­est gain in more than a year.

Mild infla­tion leaves con­sumers with more money to spend, which tends to boost eco­nomic growth. It could also encour­age busi­nesses to invest more in their stock­piles this spring.

Busi­nesses took a more cau­tious approach to restock­ing in March, a trend that has helped slow eco­nomic growth this year. Com­pa­nies’ inven­to­ries grew just 0.3 per­cent, the Com­merce Depart­ment said in a sep­a­rate report. It was the small­est increase in four months.

When com­pa­nies cut back on stock­pil­ing, it slows fac­tory pro­duc­tion and growth tends to decline.

But if retail spend­ing keeps ris­ing, busi­nesses will likely step up their restock­ing. That could boost growth in the April-June quarter.

Two other reports pro­vided some rea­son for opti­mism. A mea­sure of man­u­fac­tur­ing activ­ity in New York state jumped in May, revers­ing a large drop in April. Mea­sures of new orders and employ­ment rose.

And home­builder con­fi­dence reached its high­est level in five years in May, accord­ing to the National Asso­ci­a­tion of Home Builders/Wells Fargo hous­ing mar­ket index. Builders reported greater sales and higher traf­fic from prospec­tive buyers.

The retail sales report rep­re­sents the government’s first look at con­sumer spend­ing for the April-June quar­ter. Con­sumer spend­ing is closely watched since it accounts for 70 per­cent of eco­nomic activity.

Con­sumer con­fi­dence has improved as gas prices have fallen. The Uni­ver­sity of Michi­gan said Fri­day that its Con­sumer Sen­ti­ment index for May rose to its high­est level since Jan­u­ary 2008.

In the January-March quar­ter, over­all eco­nomic growth slowed to an annual pace of 2.2 per­cent. That’s down from the 3 per­cent increase in the October-December period, but faster than last year’s 1.7 per­cent pace.

Econ­o­mists are con­cerned that income growth con­tin­ues to lag behind infla­tion. That could weaken fur­ther if job gains don’t pick up in com­ing months. Work­ers’ aver­age hourly earn­ings have risen just 1.3 per­cent in the 12 months that ended in April. And adjusted for infla­tion, aver­age hourly pay declined 0.5 per­cent from April 2011 to April 2012.

Many econ­o­mists expect job growth will pick up in the next few months. But few see it being as strong as ear­lier this year. That should keep con­sumers spend­ing and help the econ­omy grow at a mod­er­ate pace.

Posted by AP News on May 15 2012. You can follow any responses to this entry through the RSS Feed. Comments can be made below.