American consumer spending – which accounts for two-thirds of the nation’s economic activity – inched up in May by 0.1% from the preceding month, according the latest data from the Commerce Department.
This was marginally below expectations but improved to 0.3% when adjusted for inflation. April too was adjusted upward from minus 0.1% to +0.1%. And although the numbers were no reason to hang out the flags, Bank of America senior economist Peter Kretzmer hailed them as “a distinct improvement”.
Continued low prices may have acted as a spending stimulus. May’s core inflation rate, as measured by the twelve-month change in the personal consumption expenditure price index, moved down to 1.2% from 1.3% in April.
Nor did spending rise in isolation. Inflation-adjusted income, including wages, interest and government benefits, rose 0.4% last month, the largest increase since June 2002 -- offsetting April's decline. Assuming this trend holds, spending will build in the future.
• Another key indicator brought ambiguity rather than cheer. The University of Michigan said its index of consumer sentiment edged down to 89.7 in June from 92.1 in May. But the month-end reading was a significant improvement on the initial mid-June reading of 87.2.
Observers believe this may reflect improvements in the stock and bond markets and the expectation that the Federal Reserve would lower short-term interest rates. Last week it lowered its federal-funds rate by a quarter of a percentage point to 1%, the lowest level in over forty years.
Data sourced from: The Wall Street Journal Online; additional content by WARC staff