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Ahead of the Bell: Consumer Spending

WASHINGTON (AP) -- The amount that U.S. consumers spent and the amount that they earned probably rose at a moderate pace in April.

Economists predicted that consumer spending and income both rose 0.3 percent in April. The Commerce Department will release the report at 8:30 a.m. Eastern time Friday.

In March, Americans increased their spending more slowly than in February.

But economists are hopeful that spending will keep rising by a sufficient amount to support moderate economic growth for the rest of the year. One reason for optimism is that gas prices have fallen sharply since peaking in early April, giving Americans more to spend on other things.

For the January-March quarter, consumer spending rose at an annual rate of 2.7 percent, the strongest performance since the last quarter of 2010.

But there is concern because Americans are receiving little or no pay raises. Real income — income adjusted for inflation — has been growing too slowly to sustain healthy increases in consumer spending.

After-tax income adjusted for inflation rose just 0.4 percent in the first three months of this year and that followed an even smaller 0.2 percent increase in the final three months of 2011. The tiny fourth quarter increase had previously been reported as a much stronger 1.7 percent increase.

The U.S. economy depends on consumer spending for roughly 70 percent of activity. Many people have been increasing their spending by saving less. The savings rate dipped to 3.6 percent of after-tax income in the January-March quarter, the lowest level for any quarter since the final three months of 2007.

The overall economy expanded at an annual rate of 1.9 percent in the January-March quarter, helped considerably by the solid gain in consumer spending. Economists believe the economy is growing at an annual rate of 2 percent to 2.5 percent in the current April-June quarter and they believe growth for the entire year will come in around 2.5 percent.

That would be an improvement from last year's anemic 1.7 percent growth rate. But it is just about half the rate that economists believe is needed to make a significant reduction in the unemployment rate.