WASHINGTON – Consumer spending in the U.S. grew less than forecast in May as Americans used gains in income to shore up household finances.
Purchases, which account for about 70 percent of the economy, climbed 0.2 percent after being little changed in April, Commerce Department figures showed Thursday in Washington. The median forecast of 76 economists in a Bloomberg survey called for a 0.4 percent rise. Incomes advanced 0.4 percent and the saving rate increased to an eight-month high.
Thursday’s report dims the outlook for a pickup in growth after figures released Wednesday showed consumer spending in the first quarter grew at the weakest pace in five years, restrained by a drop in health-care outlays. Sustained progress in the job market and even bigger income gains are needed to give households the means to cope with rising fuel and food costs.
“Clearly the consumer is getting a bit squeezed here,” said Nariman Behravesh, chief economist at IHS Inc. in Lexington, Mass., who correctly projected the gain in spending. “The second quarter could come in a little lower” than currently projected.
Another report on Thursday showed claims for jobless benefits dropped by 2,000 last week to 312,000, signaling steady progress in the job market, according to figures from the Labor Department.
Stocks fell for the third time in four days after the reports. The Standard & Poor’s 500 Index dropped 0.6 percent to 1,947.53 at 10 a.m. in New York.
The Commerce Department’s report also showed inflation was inching closer to the Federal Reserve’s goal. The price measure tied to consumer spending watched by the Fed rose 0.2 percent in May from the prior month and was up 1.8 percent from a year earlier. That was the biggest 12-month increase since October 2012. The central bank’s goal is for inflation to climb at around 2 percent.
Projections for spending ranged from gains of 0.1 percent to 0.6 percent. The previous month’s reading was initially reported as a drop of 0.1 percent.
The Bloomberg survey median called for incomes to rise 0.4 percent. The prior month’s income figure was unrevised from the previously reported 0.3 percent gain.
The economy contracted at a 2.9 percent annualized rate from January through March, the biggest drop-off since the first quarter of 2009, the Commerce Department reported Wednesday. Consumer purchases grew at a 1 percent annualized rate, the weakest pace in five years and revised down from a prior estimate of 3.1 percent. Some of that was related to health care services.