WRAPUP 2-US consumer spending flat in April, incomes rise

* Consumer spending flat after six months of increases

* Real disposable income rise largest in nearly a year

* Consumer confidence rises in May
(Adds confidence and regional factory surveys, updates
markets)

WASHINGTON, May 28 (BestGrowthStock) – U.S. consumer spending was
unexpectedly flat in April after six straight months of gains,
but growing consumer confidence in the economic outlook
suggested consumption will remain strong this quarter.

Although spending was unchanged, real disposable income
recorded its biggest gain in nearly a year, Commerce Department
data showed on Friday, boosted by a combination of an improving
labor market and tame inflation.

Markets had expected consumer spending, which normally
accounts for over two-thirds of U.S. economic activity, to
increase 0.3 percent after a 0.6 percent rise in March.

Separately, the Thomson Reuters/University of Michigan’s
index of consumer confidence edged up to 73.6 this month from
72.2 in April. Even more encouraging, measures of consumers’
expectations and outlook of the economy over a 12-month horizon
were the highest since January.

Confidence rose despite the stock market distress triggered
by the fiscal crisis in Europe.

“Consumers are clearly untroubled by the turmoil in the
stock market. They haven’t seen anything yet but they might if
the European crisis materializes in slower job growth,” said
Chris Low, chief economist at FTN Financial in New York.

U.S. stock indexes trimmed losses on the data, while
Treasury debt prices slipped. The U.S. dollar weakened
marginally.

Another report showed business activity in the country’s
Midwest grew less than expected in May after scaling a
five-year high the prior month. An employment gauge in the
Institute for Supply Management-Chicago’s survey slipped.

SPENDING SEEN UP

Despite April’s flat reading, analysts expect strong
spending in the second quarter as a firming labor market boosts
household incomes and tame inflation bolsters spending power.

“I think the consumer is going down the right path of
recovery. As the labor market heals, consumer spending should
remain strong,” said Sean Simko, fixed-income portfolio manager
at SEI in Oaks, Pennsylvania.

Government data on Thursday showed real consumer spending
rose at a 3.5 percent annual rate in the first quarter, more
than double the 1.6 percent pace in the October-December
period.

Economic recovery is a key goal for President Barack Obama
as tough tests loom in November’s congressional elections.
Voters are in an anti-incumbent and anti-Washington mood over
the recent recession, Wall Street’s role in the crisis, job
losses and the weak housing market. [ID:nN26200120]

Spending adjusted for inflation was also flat in April
after a 0.5 percent increase the prior month, the Commerce
Department said.

Personal income rose 0.4 percent, the report showed, after
rising by the same margin in March. Markets had expected income
to rise 0.5 percent last month.

Real disposable income rose 0.5 percent in April, the
largest increase since May 2009, after a 0.3 percent gain the
prior month. The saving rate rose to 3.6 percent from 3.1
percent in March.

The report also showed the personal consumption
expenditures price index, excluding food and energy, rising 1.2
percent in the 12 months to April, the smallest rise since
September. The index, a key inflation gauge monitored by the
Federal Reserve, increased 1.3 percent in March.

The combination of tame inflation and excess capacity in
the economy, even as the recovery gains traction, means more
room for the U.S. central bank to hold benchmark interest rates
ultra low for an extended period.

Separately, business activity in New York City grew at a
record pace in May, marking the fifth largest gain on record.

The Institute for Supply Management-New York’s seasonally
adjusted index of current business conditions showed the May
level was the highest since the survey began in 1993. In May,
the index rose to 89.9 from 62.2 in April. The 50 level
separates growth from contraction.

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graphic of U.S. price indexes and inflation expectations:

http://r.reuters.com/quf96k

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Stock Market
(Reporting by Lucia Mutikani; Additional reporting by Ann
Sphir, Caroline Valetkevitch and John Parry in New York;
Editing by Neil Stempleman)

WRAPUP 2-US consumer spending flat in April, incomes rise