Consumer Spending in U.S. Shows Biggest Gain in Almost Six Years

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Consumer Spending in U.S. Shows Biggest Gain in Almost Six Years – Bloomberg Business

Household spending climbed in May by the most in almost six years, buoyed by gains in incomes as the U.S. job market strengthened.

Consumer Spending in U.S. Shows Biggest Gain in Almost Six Years – Bloomberg Business

Purchases increased 0.9 percent, the biggest gain since August 2009, after rising 0.1 percent in April, Commerce Department figures showed Thursday in Washington. The median forecast of 75 economists in a Bloomberg survey called for a 0.7 percent advance. Incomes rose 0.5 percent for a second month.

Consumers may finally be putting savings from lower gas prices to work after holding back earlier this year. Higher stock and home prices that are lifting household wealth, in addition to increases in employment, may help Americans feel secure enough to boost spending.

“You have all these indicators pointing to stronger labor market dynamics, and at the same time you have stronger wage growth,” Gregory Daco, head of U.S. macroeconomics at Oxford Economics USA Inc. in New York, said before the report. “We are expecting consumer spending to accelerate quite sharply in the coming quarters.”

Another report showed the number of applications for unemployment insurance benefits held below 300,000, a level typically consistent with a strong labor market, for a 16th consecutive week. Jobless claims rose by 3,000 to 271,000 in the week ended June 20, according to figures from the Labor Department.

Projections for consumer spending in the Bloomberg survey ranged from gains of 0.3 percent to 1 percent. The previous month’s reading was revised up after being initially reported as little changed.

Survey Results

The Bloomberg survey median called for incomes to rise 0.5 percent. April’s income reading was revised up from a previously reported 0.4 percent increase.

The report showed the price index tied to consumer spending increased 0.3 percent in May from the prior month. It rose 0.2 percent from May 2014. This inflation measure is preferred by Fed policy makers and hasn’t met their 2 percent target since April 2012.

Stripping out the volatile food and energy components, the price measure increased 0.1 percent from the month before and climbed 1.2 percent in the 12 months ended May.

Inflation will “move gradually back” toward the Fed’s goal as the impact of lower prices of energy and imported goods fades, Fed Chair Janet Yellen said in a press conference last week at the end of a two-day policy meeting. “The committee continues to judge that the first increase in the federal funds rate will be appropriate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium-term.”

Spending Jumps

Thursday’s report also showed that after adjusting for inflation, which generates the figures used to calculate GDP, purchases climbed 0.6 percent last month, the biggest gain since August, after being little changed in April.

That increase may provide a needed lift to growth, especially after a poor showing in the first three months of the year. Commerce Department data Wednesday showed the economy shrank 0.2 percent at an annualized rate in the first quarter. Consumer spending climbed at a 2.1 percent pace after jumping 4.4 percent at the end of 2014.

Spending on durable goods, including automobiles, increased 2.3 percent in May after adjusting for inflation, following a 0.1 percent drop in April, Thursday’s data showed. Purchases of non-durable goods, which include gasoline, rose 0.9 percent, while outlays on services climbed 0.2 percent.

Auto Sales

Auto sales have been boosting the spending figures, with cheap financing helping fuel Americans’ appetites for vehicles. Industry data from Ward’s Automotive Group issued earlier this month showed cars and light trucks sold at a 17.7 million annualized rate in May, the strongest pace since July 2005.

Fuel savings may also be benefitting retailers such as restaurants, even if indirectly.

While business at steakhouse operator Ruth’s Hospitality Group Inc. may not be heavily influenced by gas prices due to its customer base, there could be knock-on effects, Chief Executive Officer Michael O’Donnell said at a June 9 industry conference. “What does affect them is if their businesses are doing better because gas prices are down. Then, they’re more likely to spend money.”

Disposable income, or money left over after taxes, increased 0.2 percent in May from the prior month after adjusting for inflation. It was up 3.5 percent over the past year. The saving rate decreased to 5.1 percent from 5.4 percent in May.

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