Consumer spending rises 0.3%

WASHINGTON - U.S. consumers spent more in May as their income rose, encouraging signs after a slow start to the year. But spending was weaker in April, February and January than previously estimated.

The Commerce Department said Thursday that consumer spending rose 0.3 percent last month, nearly erasing a similar decline in April. Income rose 0.5 percent.

At the same time, economists said the downward revisions to spending for three of the first four months of the year signal weaker growth in the April-June quarter, which ends this week.

“As we get further out in time and the fiscal drag fades, spending can do better,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, N.Y. “The second quarter is looking a bit softer, but the economy should show some improvement.”

In separate reports also released Thursday, the Labor Department said the number of Americans seeking unemployment benefits fell 9,000 to a seasonally adjusted 346,000 last week and the number of people who signed contracts to buy U.S. homes jumped in May to the highest level in more than six years, according to the National Association of Realtors.

Paul Dales, senior U.S. economist at Capital Economics, said he thinks U.S. economic growth has slowed in the second quarter at an annual rate of just 1.5 percent. Economists at Barclays have cut their forecast from an annual rate of 1.8 percent to 1.4 percent.

Tepid growth could keep the Federal Reserve from scaling back its bond purchases later this year. Chairman Ben Bernanke spooked investors last week when he said the Fed will likely slow its bond-buying this year if the economy continues to strengthen. But Bernanke said that if the economy weakens, the Fed won’t hesitate to delay its pullback or even step up its bond purchases again.

The bond purchases have helped keep interest rates low.

Dales also noted that the inflation gauge the Fed watches most closely has dropped to a record low of 1.1 percent, well below the Fed’s 2 percent target. When inflation falls too low, the Fed normally keeps rates low to try to increase prices.

Economists are hopeful that growth will pick up in the second half of the year, and some recent data have been encouraging. Consumers, benefiting from low inflation, spent more at retail businesses in May, notably for cars, home improvements and sporting goods.

“Consumer spending will continue to be the driver of the recovery,” said Tom Simons, an economist at Jefferies LLC in New York. “The second half looks better. The labor market is continuing to improve. The housing rebound will help as well.”

The Labor Department’s weekly report on unemployment assistance claims is evidence that the job market is still improving modestly, despite signs of slower growth, analysts said.

Applications for benefits are a proxy for layoffs. Since March, they have fluctuated between 340,000 and 360,000, a level consistent with steady hiring. Employers added 175,000 jobs in May, almost matching the average monthly gain for the past year. The unemployment rate was 7.6 percent, down from 8.2 percent a year earlier.

The National Association of Realtors said its seasonally adjusted index for pending home sales rose 6.7 percent to 112.3 last month. That’s the highest level since December 2006. Signed contracts have risen 12.1 percent in the past 12 months.

The increase could reflect an effort by potential buyers to complete deals before mortgage rates rose further. Mortgage rates rose in May and then jumped after Bernanke’s announcement last week.

The increase points tohealthy gains in home sales in the coming months. There is generally a one- to two-month lag between a signed contract and a completed sale.

“This report should provide comfort as it shows that housing is still holding in,” said Jennifer Lee, an economist at BMO Capital Markets. Information for this article was contributed by Martin Crutsinger and Christopher S. Rugaber of The Associated Press and Sobhana Chandra of Bloomberg News.