Americans boosted spending in May at the fastest rate in
almost six years, the latest sign the economy is rebounding from a brutal
winter. Personal spending, which measures what consumers spend on everything
from cars to medical care, jumped a seasonally adjusted 0.9% from a
month earlier, the Commerce Department said Thursday. That marked the biggest
increase since August 2009. Spending rose 0.1% in April, a revision from the
government’s initial estimate of no growth.
The boost came amid another healthy bump in Americans’
paychecks. Personal income, including wages and government aid, climbed 0.5% in
May after rising at the same pace in April. That marked the best two-month
increase in incomes since early 2014 and suggested a firming labor market is
leading employers to slowly raise wages. Economists surveyed by The Wall Street
Journal had expected spending to grow 0.7% and incomes to rise 0.5%.
It’s unclear whether consumers will continue to splurge,
particularly since they’ve pulled back after previous bursts of spending. And
Thursday’s report offered signs that, six years after the recession, the
economy is far from robust. Inflation remained subdued last month, suggesting
many merchants are still unable to raise prices significantly amid sluggish
demand at home and abroad. For now, the combination of higher spending and
incomes suggests the U.S. economy is returning to slow but steady growth after
contracting in the first quarter. The nation’s gross domestic product fell
at a 0.2% pace in January through March, the government reported earlier
this week, as the strong dollar, a labor dispute at ports and brutal weather
walloped businesses.
The dip was likely temporary. A long run of job growth
appears to be boosting household finances and spirits while also enabling
merchants to charge slightly more for their products. Many private economists
project that GDP will have grown at a pace of between 2% and 3% in the
April-through-June period.
Consumer spending is the biggest driver of growth in the
U.S., representing more than two-thirds of output. The pickup in consumer
spending last month largely reflected Americans stepping up purchases of both
nondurable and durable goods. Overall spending on goods rose 2% from April,
while spending on services grew 0.3%.
Higher prices—particularly at service stations, with
gasoline costs picking up after a nearly yearlong swoon—accounted for some of
the increased household outlays. Adjusted for inflation, household
spending increased 0.6% from April, the most since August 2014. The latest
figures are likely to reassure the Federal Reserve as it moves closer to
raising short-term interest rates, which have been pinned near zero since the
recession. The Fed has said it wants to see signs of economic growth returning
to a steady pace before raising rates. Central bank officials have indicated a
September increase is possible.
The outlook on inflation will be a key factor in the Fed’s
decision. The central bank targets inflation of 2% a year as a sign the economy
is growing healthily without stoking runaway inflation. Thursday’s report
showed the Fed’s favored inflation gauge remained below the 2% target for
the 37th consecutive month. The price index for personal consumption
expenditures grew 0.3% from April and 0.2% from May 2014. Core prices, which
exclude food and energy costs, increased 0.1% from the prior month and 1.2%
from a year earlier.
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