You are here

US consumer spending rises for second straight month

Wednesday, June 29, 2016 - 21:09
37126134 - 08_01_2016 - US CONSUMER CONFIDENCE.jpg
US consumer spending rose for a second straight month in May on increased demand for automobiles and other goods, but there are fears Britain's vote to leave the European Union could hurt confidence and prompt households to cut back on consumption.

[WASHINGTON] US consumer spending rose for a second straight month in May on increased demand for automobiles and other goods, but there are fears Britain's vote to leave the European Union could hurt confidence and prompt households to cut back on consumption.

The Commerce Department said on Wednesday consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.4 per cent last month, pointing to an acceleration in economic growth in the second quarter.

Consumer spending in April was revised up to show it advancing 1.1 per cent instead of the previously reported 1.0 per cent jump. Last month's increase in consumer spending was in line with economists' expectations.

Last Thursday's so-called "Brexit" referendum wiped off an estimated US$3.01 trillion from global stock markets over two days. Economists say if the financial turbulence persists, that could hurt consumer confidence and cause companies to either delay or scale back capital projects, exerting further downward pressure on business investment.

So far, economists are forecasting that Brexit will subtract an average of two-tenths of a percentage point from US growth over the next six quarters.

When adjusted for inflation, consumer spending rose 0.3 per cent after gaining 0.8 per cent in April. That could prompt economists to raise their forecasts for second-quarter consumer spending and economic growth.

Consumer spending rose at a 1.5 per cent annual rate in the first quarter, holding down gross domestic product growth to a 1.1 per cent pace. The Atlanta Federal Reserve is currently estimating second-quarter GDP rising at a 2.6 per cent rate.

Despite the steady gains in consumer spending last month, inflation remained benign. The personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, rose 0.2 per cent last month after a similar gain in April.

In the 12 months through May the core PCE increased 1.6 per cent after rising by the same margin in April. The core PCE is the Federal Reserve's preferred inflation measure and is running below the US central bank's 2 per cent target.

Last month, consumer spending was boosted by a 0.3 per cent jump in purchases of long-lasting manufactured goods such as automobiles. Spending on services increased 0.4 per cent.

Personal income rose 0.2 per cent after advancing 0.5 per cent in April. Wages and salaries gained 0.2 per cent. Savings slipped to US$730.6 billion last month from US$753.7 billion in April.

REUTERS