US consumer spending was unexpectedly flat last month after six 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 yesterday, boosted by a combination of an improving labour market and tame inflation, said a report in our sister publication, the Gulf Daily News.

Markets had expected consumer spending, which normally accounts for over two-thirds of US economic activity, to increase 0.3 per cent after a 0.6 per cent 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 last month. 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 materialises in slower job growth," said FTN Financial chief economist Chris Low.

Another report showed business activity in the country's Midwest grew less than expected this month after scaling a five-year high last month.

Despite last month's flat reading, analysts expect strong spending in the second quarter as a firming labour market boosts household incomes and tame inflation bolsters spending power.

Government data showed real consumer spending rose at a 3.5 per cent annual rate in the first quarter, more than double the 1.6 per cent pace in the October-December period. Spending adjusted for inflation was also flat last month after a 0.5 per cent increase in March, the Commerce Department said.

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

Real disposable income rose 0.5 per cent last month, the largest increase since May last year, after a 0.3 per cent gain the prior month. The saving rate rose to 3.6 per cent from 3.1 per cent in March.

The report also showed the personal consumption expenditures price index, excluding food and energy, rising 1.2 per cent 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 per cent in March.

The combination of tame inflation and excess capacity in the economy, even as the recovery gains traction, means more room for the US 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 this month, marking the fifth largest gain on record.

The Institute for Supply Management-New York's seasonally adjusted index of current business conditions showed the level was the highest since the survey began in 1993. This month, the index rose to 89.9 from 62.2 last month. The 50 level separates growth from contraction. – TradeArabia News Service