Consumer spending sees weak May gain

At 0.2%, growth fails to hit forecasts

Friday, June 27, 2014

WASHINGTON -- U.S. consumers increased their spending only modestly in May, a disappointment to economists who said the weaker-than-expected gain will likely mean a lesser economic rebound in the April-June quarter than many had envisioned.

Spending rose just 0.2 percent last month after no gain in April, the Commerce Department said Thursday. The two months followed a robust spending surge of 0.8 percent in March.

Income rose a solid 0.4 percent in May after a 0.3 percent April gain.

Last month's 0.2 percent gain in spending was just half the increase that analysts had been expecting. Some said that unless June sees a big increase, spending may not provide as much support to the economy in the second half of the year as they had been expecting.

Paul Dales, senior U.S. economist at Capital Economics, said consumer spending may end up rising at an annual rate of 1.7 percent in the April-June quarter, which he said "wouldn't be much of a rebound" from the sluggish 1 percent growth in consumer spending last quarter.

Consumer spending is closely watched because it accounts for about 70 percent of economic activity.

Dales said strength in other areas should still lift economic growth to a 3 percent annual rate in the current quarter after a 2.9 percent annual decline in economic output in the first three months of the year.

Jennifer Lee, senior economist at BMO Capital Markets, agreed that the spending figure was pointing to economic growth of about 3 percent in the second quarter, instead of the 3.8 percent she had earlier forecast.

"Clearly the consumer is getting a bit squeezed here," said Nariman Behravesh, chief economist at IHS Inc. in Lexington, Mass. "The second quarter could come in a little lower" than currently projected.

An inflation gauge that's closely monitored by the Federal Reserve has risen 1.8 percent over the past 12 months through May, the fastest rise since late 2012 but still below the Fed's 2 percent target.

In May, spending on durable goods jumped 0.7 percent, a rebound after having fallen 0.9 percent in April. Also in May, auto dealers reported their best sales month in nine years, helped by brisk demand for SUVs and pickups.

Cars and light trucks sold at a 16.7 million pace in May, the fastest rate since February 2007.

Sales of nondurable goods rose 0.2 percent in May after a stronger 0.4 percent April gain, while spending on services such as rent and utilities increased a modest 0.1 percent.

Fewer Americans filed applications for unemployment benefits last week, a sign of steady progress in the labor market.

Unemployment claims fell by 2,000 to a one-month low of 312,000 in the week ended June 21, the Labor Department said Thursday. The median forecast of economists surveyed by Bloomberg called for 310,000 initial claims.

Dismissals are hovering just above their pre-recession lows, and hiring has picked up as companies grow confident the economy will snap back from the worst contraction in five years. Employment that's on pace for its best year since 1999 will need to prompt faster wage growth for consumer spending to accelerate.

"What we're seeing is a mild slowdown in the pace of layoffs," said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Conn. "The trouble with the job market has always been on the hiring side, not the layoff side."

Economists' joblessness claims estimates in the Bloomberg survey ranged from 305,000 to 325,000 after an initially reported 312,000 in the week ended June 14.

No states estimated data and there was nothing unusual in the report, a Labor Department spokesman said as the figures were released.

The four-week average of claims, a less-volatile measure than the weekly figure, rose to 314,250 from 312,250 the week before.

The number of people continuing to receive unemployment benefits climbed by 12,000 to 2.57 million in the week ended June 14. The unemployment rate among people eligible for benefits rose to 2 percent during that period from 1.9 percent, Thursday's report showed.

Fewer firings typically foreshadow an acceleration in job growth. Employers added 217,000 workers to payrolls in May, lifting the average monthly advance to 213,600 so far in 2014, the most for a year's average since 1999.

Information for this article was contributed by Martin Crutsinger of The Associated Press and Lorraine Woellert, Shobhana Chandra, Lindsey Rupp and Alex Tanzi of Bloomberg News.

Business on 06/27/2014