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WASHINGTON: US personal income posted a surprise jump in April fuelled by government stimulus and tax breaks but wary consumers were reluctant to spend in the midst of prolonged recession, new data showed on Monday.
The Commerce Department said personal consumption expenditures, a main driver of economic activity, decreased 5.4 billion dollars, or 0.1 percent - less than the 0.3 percent decline in March.
The fall was also smaller than the 0.2 percent expected by most private forecasters.
The same report showed a 0.5 percent rise in personal income in April, well above the consensus of a 0.2 percent decline. Income had fallen 0.2 percent in both February and March.
Disposable income, the money left over after the government takes its share, rose sharply in April - by 1.1 percent after being flat for the two previous months as social benefits and tax cuts kicked in under a nearly 800 billion dollar government stimulus plan.
Growth in wages and salary income was unchanged in April, snapping a streak of seven consecutive declines.
With income rising and spending down, the savings rate soared to a 14-year high of 5.7 percent in April, compared with 4.5 percent in March, the government data showed.
As unemployment rises rapidly on the back of bankruptcies and layoffs by companies reeling from a 17-month contraction of the world's largest economy, analysts said consumers were reluctant to go on a spending binge despite the additional income.
The unemployment rate jumped to 8.9 percent in April.
"The labour market remains a major headwind to consumers," said IHS Global Insight chief US Economist Nigel Gault.
Looking forward, he forecast another "steep drop" in employment in May and consumers to remain being cautious.
"But we do expect spending to creep slowly higher in the second half of the year as the labor market deterioration becomes less severe," he said.
Joel Naroff, president of Naroff Economic Advisors, said while the government stimulus package put money back into households' hands, they were not rushing out to spend it.
"People have a lot more money to spend but as of yet, they have not started returning to their homes away from homes - the malls," he said.
The savings rate is also likely to go higher in the coming months "as households are deleveraging," said Elsa Dargent, an economist with French investment bank Natixis.
The United States plunged into recession in December 2007 amid financial turmoil following a home mortgage meltdown.
The economy shrank at a 5.7 percent pace in the first quarter of 2009 after a brutal 6.3 percent contraction in the fourth quarter, according to revised government estimates last week.
US authorities and some economists say the economy could emerge from the recession that began in December 2007 by year-end.
The manufacturing sector, a key engine of growth, showed decline for the 16th month in a row, according to a widely monitored survey on Monday but the data offered some rays of hope for the industry and the ailing economy.
The Institute of Supply Management said its index of the manufacturing sector, also known as the purchasing managers (PMI) index, rose to 42.8 percent from the 40.1 percent reported in April.
The figure was the highest level since September and a bit more than expected.
It was however still below the 50 percent level that separates expansion and contraction.
But the institute said a PMI in excess of 41.2 percent, over a period of time, generally indicates an expansion of the overall economy.
"Therefore, the PMI indicates growth in the overall economy following seven months of decline, and continuing contraction in the manufacturing sector," said the institute, a top global supply management group. - AFP/de
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