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Falling gas prices could loosen consumer spending

CX Matiash/Associated Press

Recent economic reports suggest that lower prices at the pump may be combining with steady job growth to power more spending on big purchases.

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.

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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.

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.

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 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.

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.

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 home builder 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.

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