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U.S. consumers cut spending 0.2 percent in April

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news Willmar, 56201

Willmar Minnesota 2208 Trott Ave. SW / P.O. Box 839 56201

By CHRISTOPHER S. RUGABER

AP Economics Writer

WASHINGTON (AP) -- Americans cut back on spending in April after their income failed to grow, a sign economic growth may be slowing.

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The Commerce Department said Friday that consumer spending dropped a seasonally adjusted 0.2 percent in April, the first decline since last May. That follows a 0.1 percent increase in March and a 0.8 percent jump in February.

Adjusted for inflation, spending ticked up 0.1 percent last month. A drop in gas prices likely lowered overall spending.

But income was unchanged last month, after a 0.3 percent rise in March and 1.2 percent gain in February.

The retrenchment in spending suggests consumers may be starting to feel the impact of higher taxes.

An increase in Social Security has reduced take-home pay for nearly all consumers who draw a paycheck. A person earning $50,000 a year has about $1,000 less to spend this year because of the increase in Social Security taxes. A household with two high-paid workers has up to $4,500 less.

Consumer spending drives 70 percent of economic activity. The fastest growth in spending in more than two years helped the economy expand at a 2.4 percent annual rate in the first quarter, much faster than the 0.4 percent rate from October through December.

But many economists now believe growth is slowing to a pace of around 2 percent.

Still, a decline in gas prices may have played a part in reducing spending in April because the figures aren't adjusted for inflation. Gas prices tumbled in March and April after peaking in late February.

Improvement in hiring, rising home prices and strong stock gains could make consumers more willing to spend later this year.

Home prices, meanwhile, have surged nearly 11 percent in the past year. Rising prices tend to make homeowners feel wealthier and more likely to shop. Some economists estimate that for every dollar increase in home values, consumer spending can rise as much as 10 cents.

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