U.S. consumers resumed spending at a gradual pace in May thanks to a healthy rise in incomes and continued low prices.
Consumer spending, a key growth engine for the U.S. economy, was up 0.2% last month after a flat reading in April, the Commerce Department said in a report Monday. Incomes rose 0.4% in May, helped by slow improvements in the jobs market, following a 0.5% increase in April.
The figures were in line with what economists surveyed by Dow Jones Newswires were expecting.
With income growth picking up, U.S. consumers boosted savings in May. Americans last month saved $454.3 billion as the national saving rate rose to 4.0% from 3.8% in April.
The U.S. economy started to come out of its severe recession in the second half of 2009, helped by federal stimulus and record-low interest rates. To continue to grow this year, household spending and company investments need to make up for fading government stimulus. Consumer purchases, which account for more than two-thirds of demand in the economy, are being held back by a still high unemployment rate and heavy debt loads.
U.S. gross domestic product, a broad measure of economy activity, increased by an annualized 2.7% in the first quarter, helped by higher consumer spending. Although joblessness remains high, a gradually improving jobs market and benefits for the unemployed are helping to keep spending and incomes up. The Federal Reserve last week was more cautious about U.S. economic growth, pointing out that Europe’s debt crisis has led to tighter financial conditions.
Meantime, the slack still left over from the worst recession since the 1930s is keeping a lid on prices. A price gauge that’s closely watched by the U.S. Federal Reserve was tame in May, giving the central bank continued reason to keep rates near zero to support the recovery and bring unemployment down.
The core price index for personal consumption expenditures, which excludes food and energy prices because of their volatility, rose 0.2% in May from April. On a year-over-year basis, the increase was 1.3%.
The overall PCE price index, which includes food and energy prices, was unchanged last month and up 1.9% on a year-over-year basis.
Commerce on Monday also revised up slightly income data for April, saying incomes grew 0.5%. The government had originally reported that incomes rose 0.4% in April.
By Luca Di Leo and Darrell A. Hughes – wsj.com
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