The Economy

U.S. Consumer Spending Shows Biggest Gain in Six Years

“This portends well for second-quarter growth and the broader momentum of economic activity in the second half of the year," an economist says.
Katie Kuehner-HebertJune 25, 2015

U.S. consumer spending rose $105.9 billion, or 0.9% in May, the Commerce Dept. said Thursday – the largest percentage increase since August 2009. In April, spending rose 0.1%.

Economists polled by Reuters had forecast consumer spending rising 0.7% in May. The figures reflect more purchases of cars, trucks, and other high-ticket items.

“May’s sturdy increase in consumer spending, which accounts for more than two-thirds of U.S. economic activity, suggested households were finally spending some of the windfall from lower gasoline prices, and capped a month of solid economic reports,” Reuters wrote.

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The report also showed that economic growth was slowly gaining momentum after gross domestic product shrank at a 0.2% annual rate in the first quarter, as the economy battled bad weather, port disruptions, a strong dollar and spending cuts in the energy sector. Now that that the economy is strengthening, the Federal Reserve could raise interest rates this year even as inflation remains well below the U.S. central bank’s 2% target. Many economists expect a rate hike in September.

“This portends well for second-quarter growth and the broader momentum of economic activity in the second half of the year, and keeps the prospect of a September rate hike squarely on the table,” Miller Tabak chief economic strategist Anthony Karydakis told Reuters.

Personal income in May rose $79.0 billion, or 0.5%, and disposable personal income increased $65.5 billion, or 0.5%. In April, personal income rose $69.6 billion, or 0.5%, and DPI increased $57.0 billion, or 0.4%.

Separately, the Labor Dept. said that initial claims for state unemployment benefits rose 3,000 to a seasonally adjusted 271,000 for the week ended June 20.

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