Consumer Spending Increases More Than Expected

NEW YORK -- Consumer spending in the U.S. rose in May more than was forecasted, a sign households are gaining confidence in the recovery and the job market, Bloomberg News reported.

Purchases rose 0.2 percent after little change the month before, U.S. Commerce Department figures showed. Incomes climbed 0.4 percent and the savings rate increased 4 percent, reaching its highest level in eight months, according to the report.

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

"The labor market is gradually improving, labor income is picking up and that should continue to support spending," said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. "We see a solid, trend-like growth in spending" in coming months.

The median estimate of 61 economists surveyed by Bloomberg News called for a 0.1-percent gain in spending for the month of May. Projections ranged from an increase of 0.3 percent to a 0.5-percent drop. The median estimate also called for a 0.5-percent advance in incomes. Wages and salaries in May rose 0.5 percent for a second month.

The Federal Reserve 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," the organization said.

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 project that 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.

Related News:

Retail Sales Drop in May

Consumer Spending at Lowest in Seven Months

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