US consumer spending posts healthy gain in May

WASHINGTON – Americans went shopping this spring, increasing their spending in May for the second straight month and delivering good news for economic growth.

The Commerce Department said Wednesday that consumer spending increased 0.4 per cent in May on top of a 1.1 per cent surge in April.

Spending on durable goods such as autos and appliances grew 0.6 per cent, down from a 2.6 per cent jump in April. Spending on nondurable goods, such as food and clothing, grew 0.5 per cent. And spending on services grew just 0.1 per cent.

The overall numbers underscore that consumer spending, which accounts for about 70 per cent of U.S. economic activity, picked up in the spring after getting off to a slow start in 2016. The economy grew at a lacklustre 1.1 per cent pace from January through March, partly because consumer spending grew just 1.5 per cent, the slowest pace in two years.

Economists expect growth to rebound to a pace of 2 per cent or faster in the second quarter.

“Consumption held up well,” Michael Dolega, senior economist at TD Economics, wrote in a research note. “In fact, after a timid first quarter American shoppers appeared to be out in full force during the second quarter, with real consumption rising more than 4 per cent annualized – enough to boost (economic) growth above the mid-2 per cent mark this quarter.”

Still, Americans’ incomes grew just 0.2 per cent in May, down from 0.5 per cent in April.

It’s unclear how American consumers will respond to Britain’s decision last week to leave the European Union, which so far has rattled global financial markets and raised fears over prospects for the world economy.

On Tuesday, the Conference Board, a business group, reported that its consumer confidence index rose in June to the highest level since October. But its survey was taken before the “Brexit” vote. The University of Michigan’s consumer sentiment index, out last Friday, registered deterioration in consumers’ spirits this month.

An inflation gauge watched by the Federal Reserve showed prices are up 0.9 per cent over the past year, 1.6 per cent excluding volatile food and energy costs. Both numbers are well below the Fed’s target of 2 per cent.