Consumer Spending Reverses Course to Gain 0.3 Percent in May

Andrew Klips  |

Reversing course from an April performance that was the worst in nearly four years, consumer spending in the U.S. rose during May as Americans made more money, according to a Thursday report from the Commerce Department's Bureau of Economic Analysis.

Personal consumption expenditures rose by 0.3 percent in May, essentially erasing a revised 0.3 percent decline in April that was initially estimated as a 0.2 percent decline. April's decline was the biggest monthly drop since the fall of 2009. When adjusted for inflation, consumer spending increased 0.2 percent in May after a 0.1 percent drop the month earlier.

Economists expected a 0.4 percent rise in consumer spending.

Consumer spending is closely monitored because it accounts for more than two-thirds of the nation's economic activity. On Wednesday, the Commerce Department revised its gross domestic product figure for the first quarter downward from 2.4 percent expansion to only 1.8 percent, largely because of less consumer spending than was originally thought.

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There has been some fears in the first half of 2013 that payroll tax increases that went into effect as part of the sequester would hurt consumer spending, with some economists saying that the last GDP revision shows it had more of an impact than first estimated. The increases in May, while still subject to later revisions, may quell some of those concerns. Other recent data has also supported a strengthening economy, lending to the Fed's comments last week that downside risk to the economy has diminished.

Personal income rose $69.4 billion, or 0.5 percent, in May, after rising 0.1 percent the month prior. Economists expected a 0.2 percent increase for May. Disposable personal income rose 0.5 percent for the month, following a 0.1 percent increase in April. Adjusted for inflation, the DPI advance wasn't as large, rising by 0.4 percent, compared to a 0.3 percent increase.

Incomes rising faster than spending meant that more people socked money away, pushing the individual savings rate to 3.2 percent in May from 3.0 percent in April. May represents the highest savings level in 2013.

Inflation remained muted in May, continuing a long-standing theme, with the overall price index of personal consumption expenditures edging upward by 0.1 percent. Year-over-year, it is up only 1.1 percent, still far below the Federal Reserve's 2.0-percent inflation target. The so-called "core" index, which excludes the volatile food and energy components, also rose 0.1 percent in May.

Separately, a report on Thursday from the Labor Department showed that initial jobless claims for the week ended June 22 declined to 346,000 from a revised 355,000 (up from an original 354,000 estimate last week).

Stocks are continuing a strong two-day rally that included the Dow's 14th triple-digit daily gain for the month of June on Wednesday. Early in Thursday action, the Dow is at it again, rising 125 points while the S&P 500 is ahead 12 points and the Nasdaq is up 25 points.

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