(Adds details, analyst comments, updates markets)
* Consumer spending slips 0.1 percent in April
* Signs of price pressures as inflation gauges push higher
* Consumer sentiment ebbs; Midwest manufacturing surges
By Lucia Mutikani
WASHINGTON, May 30 U.S. consumer spending fell
for the first time in a year in April after two months of solid
gains, but the decline is likely temporary given a strengthening
The Commerce Department said on Friday consumer spending
dipped 0.1 percent, which was the first decline since April
2013. But the drop followed an upwardly revised 1.0 percent jump
in March that was the largest gain since August 2009.
"The disappointing spending report should be viewed in the
context of a stronger handoff into the second quarter," said
Gennadiy Goldberg, an economist at TD Securities in New York.
"We look for ongoing labor market progress to encourage further
growth in consumer spending."
Last month's decrease, which was driven by weak spending on
durable goods and utilities, did not change expectations
economic growth would top a 3 percent annual pace this quarter
after output shrank in the first three months of the year.
A separate report showed consumer sentiment slipped in May
as households worried about income, but that too was viewed as
temporary in light of the steady labor market improvement.
The Thomson Reuters/University of Michigan's consumer
sentiment index fell to 81.9 in May from 84.1 in April, but was
up slightly from earlier in the month.
Another report from the Institute for Supply
Management-Chicago showed factory activity in the U.S. Midwest
reached its highest level in seven months in May, boosted by a
surge in new orders. Order backlogs jumped to a three-year high
and inventories rose for a second consecutive month.
"It provides more evidence that the economy and
manufacturing are in an upswing, and points to rising
employment," said John Ryding, chief economist at RDQ Economics
in New York.
U.S. Treasury debt prices fell on the mixed data, while the
dollar slipped against a basket of currencies. U.S. stocks were
INFLATION CREEPING UP
The report on consumer spending provided the latest evidence
that inflation was starting to stir.
Prices rose 0.2 percent in April, pushing the year-on-year
reading up to 1.6 percent - the largest gain since November
2012. It had advanced 1.1 percent in March.
Excluding food and energy, prices increased 0.2 percent.
These so-called core prices were up 1.4 percent from a year ago,
the biggest increase since March 2013.
The pick-up is welcome news for Federal Reserve officials,
who have been worried that inflation was running so far below
the central bank's 2 percent target.
Weak medical care costs has kept inflation down but that
anchor is slipping away. Economists say a rise in those costs
plus increasing rents should lift inflation this year and pave
the way for an interest rate hike from the Fed.
"We believe the inflation backdrop will keep the Fed on a
gradual path to normalization and look for the first rate
increase in June 2015," said Michael Gapen, an economist at
Barclays in New York.
The Fed has held benchmark overnight interest rates near
zero since December 2008.
(Reporting by Lucia Mutikani; Editing by James Dalgleish and