Spending shows little life in May

LITTLE ROCK — Consumer spending was flat in May, falling less than 0.1 percent, the Commerce Department said Friday.

While income growth edged up 0.2 percent, the increase was mostly because of gains from investments. Wages, the largest component of income, were essentially flat.

Americans cut back spending on cars and other long-lasting manufactured goods, even though they paid less for gasoline. Consumers did increase how much they spent on services for the second-straight month, one of the few positive signs.

The government also said spending after adjusted for inflation was weaker in April and March than first thought.

“Consumers are struggling with a lack of income growth, and the consequence is [that] spending is suffering,” said Ward McCarthy, chief financial economist at Jefferies & Co. in New York, who forecast stagnant spending.

Consumer spending drives roughly 70 percent of economic activity. The mostly disappointing report suggests growth in the April-June quarter could be weaker than the previous quarter’s modest 1.9 percent annual pace.

Paul Dales, senior U.S. economist for Capital Economics, said annual growth in the second quarter could be closer to 1.5 percent.

Job growth has tumbled in the past two months; consumer confidence has fallen; and growth in manufacturing has slowed, in part because Europe’s financial crisis has dampened demand for U.S. exports.

Some economists are hopeful that lower prices for gasoline could lead consumers to spend more this summer.

Consumer spending on autos and other durable goods fell 0.4 percent in May. Spending on nondurable goods dropped 0.8 percent, mostly because of the lower gasoline prices.

Prices for gasoline have fallen sharply since peaking in early April at a national average near $4 per gallon. The nationwide average Friday for a gallon of regular was $3.35, according to AAA’s daily fuel gauge report. In Arkansas, the average price was $3.13.

A measure of U.S. consumer sentiment fell in June to the lowest level for 2012, dragged down by a sluggish job market and weak growth.

The Thomson Reuters/ University of Michigan index of consumer sentiment fell to 73.2 in June from 79.3 in May. Higher-income households said they planned to cut back on spending, accounting for much of the drop.

The report echoes the Conference Board’s survey of consumer confidence, which fell in June for the fourth-straight month.

Concerns about the job market are outweighing the benefits of lower gasoline prices.

Another report Friday showed business activity unexpectedly expanded in June at a faster pace as production rebounded.

The Institute for Supply Management-Chicago Inc. said its business activity barometer increased to 52.9 from 52.7 in May. A reading of 50 is the dividing line between growth and contraction.

Information for this article was contributed by Martin Crutsinger and Christopher S. Rugaber of The Associated Press and by Alex Kowalski, Michelle Jamrisko, Caroline Fairchild and Kristy Scheuble of Bloomberg News.