Economy Remains in Slo-Mo Mode As Election Season Heats Up

Paychecks and spending are barely budging, but inflation remains in check.

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Federal government data released Tuesday show that Americans' earnings were flat in April, the purchasing power of those earnings remained unchanged, and the amount that consumers spent barely budged.

According to the Labor Department, Americans' real earnings remained unchanged from March, and their weekly hours, at 34.5 per week, also remained unchanged from the previous month. The consumer price index was unmoved from March, indicating that inflation didn't reduce the buying power of those earnings, however. And retail and food services sales increased by 0.1 percent, a deceleration from March's revised 0.7 percent and well within the margin of error.

Buried within the reports are a few signs of relief—gasoline prices, for example, are taking a smaller bite out of paychecks, and were down 2.6 percent from March. That's a significant improvement from March's 1.7 percent increase and February's 6 percent increase.

In addition, though flat on a monthly basis, April retail and food service sales were up 6.4 percent from one year prior, pointing to a public more willing to spend and fuel the economy. That spending has been broad as well; of the sectors tracked by the Commerce Department, only one, department stores, has seen a decline in sales since April 2011. Building material and garden equipment and supplies stores have seen some of the fastest sales growth, meanwhile, at 10.3 percent since last year, and sales at auto and auto parts dealers have grown by 8.4 percent.

"The improvement in the retail sales number reflects the fact that private companies in the retail sector continue to grow at a healthy rate. The retail sector was one of the last sectors to improve, so the current growth rate indicates a fairly broad recovery," says Brian Hamilton, CEO of financial information company Sageworks.

Still, the combination of moderate inflation and weak earnings growth means that American workers are losing earning power. Overall inflation—now growing at 2.3 percent on an annual basis—combined with annual hourly earnings growth of 1.8 percent, have both contributed to a decline of 0.5 percent in real average hourly earnings over the past year.

While all signs point to a continued sluggish recovery, it's unlikely that the Federal Reserve will undertake new monetary stimulus in the near future. Inflation remains just above the Fed's target rate of 2 percent, and Federal Reserve Chairman Ben Bernanke and his fellow Fed governors will not likely want to do anything to shift that higher. However, there is little foreseeable risk right now of yet more inflation.

"The Fed will remain vigilant on inflation, but we don't expect price pressures to force a premature rate hike anytime soon," writes Chris Jones, economist at TD Economics, in a commentary on today's data. "With so much slack in the labor market and income growth sluggish, it's hard to see where the domestic risks of higher inflation will come from in the near term."

Danielle Kurtzleben is a business and economics reporter for U.S. News & World Report. Connect with her on Twitter at @titonka or via E-mail at dkurtzleben@usnews.com.