US consumer spending rebounds; income plunges

[WASHINGTON] US consumer spending rebounded by the most on record in May, but the gains are not likely to be sustainable, with income dropping and expected to decline further as millions lose their unemployment checks starting next month.

The Commerce Department said on Friday consumer spending, which accounts for more than two-thirds of US economic activity, jumped 8.2 per cent last month. That was the largest increase since the government started tracking the series in 1959. Consumer spending tumbled by a historic 12.6 per cent in April.

Economists polled by Reuters had forecast consumer spending rising 9 per cent in May. The surge in spending last month reflected the reopening of many businesses after being shut in mid-March to control the spread of Covid-19.

Consumers stepped up purchases of motor vehicles and recreational goods. They also boosted spending on healthcare, and at restaurants, hotels and motels.

But personal income dropped 4.2 per cent, the most since January 2013, after surging by a record 10.8 per cent in April when the government handed out one-time US$1,200 checks to millions of people and boosted unemployment benefits to cushion against the Covid-19 hardship.

The payments are part of a historic fiscal package worth nearly US$3 trillion. The drop in income last month reflected a decrease in government welfare payments related to the pandemic.

The government will stop paying an additional US$600 per week in unemployment benefits on July 31.

Consumer spending in May was funded from savings, pushing the saving rate down to a still-high 23.2 per cent from a record 32.2 per cent in April.

Inflation remained weak last month, with the personal consumption expenditures (PCE) price index excluding the volatile food and energy components edging up 0.1 per cent after falling 0.4 per cent in April. In the 12 months through May, the so-called core PCE price index rose 1.0 per cent, matching April's gain.

The core PCE index is the Federal Reserve's preferred inflation measure. The US central bank has a 2 per cent inflation target.

REUTERS