The Times of India

Telugu News

Monday, June 28, 2010

Consumer Spending in US Increased in May more than Forecast

 
 

Consumer spending in the U.S. rose in May more than forecast, a sign households are gaining confidence in the recovery and the job market.

Purchases rose 0.2 percent after little change the prior month, Commerce Department figures showed today. Incomes climbed 0.4 and the savings rate increased to the highest level in eight months.

Demand may accelerate as gains in payrolls, longer workweeks and rising pay give Americans the means to spend. Federal Reserve policy makers last week pledged to keep interest rates low to ensure households weather the fallout from the European debt crisis, unemployment hovering near a 26-year high and tight credit.

"The U.S. consumer remains resilient," said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, which correctly forecast the gain in spending. "As long as jobs are coming back people will continue to spend."

Stock-index futures dropped, erasing earlier gains. The contract on the Standard & Poor's 500 Index fell 0.1 percent to 1,073.5 at 8:50 a.m. in New York. Treasury securities rose, pushing the yield on the benchmark 10-year note down to 3.06 percent from 3.11 percent late on June 25.

The median estimate of 61 economists surveyed by Bloomberg news called for a 0.1 percent gain in spending. Projections ranged from an increase of 0.3 percent to a 0.5 percent drop.

 
Survey Forecasts

The median estimate of economists surveyed called for a 0.5 percent advance in incomes. Wages and salaries in May rose 0.5 percent for a second month.

The savings rate increased to 4 percent last month, the highest level since September, to $454.3 billion.

"Americans will remain focused on paying down their debts and rebuilding their savings," said BMO's Guatieri.

The report showed inflation was stabilizing. The inflation gauge tied to spending patterns increased 1.9 percent from May 2009 after a 2 percent increase in the 12 months through April.

The Fed's preferred price measure, which excludes food and fuel, rose 0.2 percent in May from the prior month, exceeding the 0.1 percent median estimate of economists surveyed.

The Fed last week said the labor market is "improving gradually," changing April's assessment that it was "beginning to improve." Consumer spending still "remains constrained" by joblessness and "tight credit," it said.

 
Durable Goods

Adjusted for inflation, purchases rose 0.3 percent last month after little change in April. Price-adjusted spending on durable goods, including automobiles and appliances, increased 1.1 percent after a 0.5 percent drop. Demand for nondurable goods decreased 0.2 percent, the first decline this year, while spending on services increased 0.3 percent.

"Consumers are less cautious than they were previously," Robert Niblock, chief executive officer at Lowe's Cos., the second-largest home-improvement chain, said in a June 23 teleconference. "But they still know that we're still not out of the woods yet."

Confidence among U.S. consumers rose in June to the highest level since January 2008, indicating the decline in stock prices prompted by the European debt crisis has failed to weigh on sentiment, figures from Thomson Reuters/University of Michigan showed last week. The group's final sentiment index increased to 76 from 73.6 in May. The index has averaged 84.5 over the past decade.

Consumer spending grew at a 3 percent annual pace in the first three months of 2010, less than previously estimated, the Commerce Department said last week. The report showed the economy grew 2.7 percent in the first quarter.

Economists surveyed this month projected purchases will expand at a 3 percent rate in the April-to-June period and 2.6 percent in the second half of the year.

Courtesy : Bloomberg