Tepid US Consumer Spending Keeps Economic Rebound On Track
The tepid pace of US consumer spending in May is nevertheless enough to keep the economy on track for a rebound in the second quarter, helped by income gains, Commerce Department figures showed Friday.
Purchases rose 0.1% from prior month after a 0.4% increase in April, while incomes rose 0.4%. Price gauge tied to consumption fell 0.1% month-on-month, but was up 1.4% year-on-year.
Americans may be reluctant to ramp up spending until they see a faster pickup in wages, even as steady hiring, healthier balance sheets and low borrowing costs are helping to support their purchases. Since household spending accounts for about 70% of the economy, any persistent weakness would damp the outlook for a stronger rebound in economic growth after the lacklustre pace of early 2017.
An outsized 4.8% jump in dividends powered May’s gain in inflation-adjusted disposable income, which matched the biggest since December 2012. Wages and salaries, meanwhile, cooled to a 0.1% increase following a 0.5% gain in April.
The data on prices showed a further slowdown in May. If they fail to pick up the pace in coming months, Federal Reserve policy makers could reconsider plans to raise interest rates later this year while they’re waiting for inflation to reach their 2% goal. At the same time, weak price pressures may help boost consumer purchases.
Adjusted for inflation, purchases increased 0.1% after a 0.2% gain, and disposable income rose 0.6% after adjusting for inflation. Saving rate rose to 5.5%, highest since September, from 5.1% in April. Household outlays on services rose 0.1% from previous month after adjusting for inflation, while spending on goods rose 0.1% after adjusting for inflation, following 0.7% gain.