WASHINGTON (Reuters) - U.S.
consumer spending rose less than expected in May,
prompting economists to downgrade estimates for
second-quarter growth.
There is, however, little doubt the economy is expanding. Another
report on Thursday showed the number of Americans seeking
unemployment benefits fell again last week.
Even as they lowered growth forecasts for this quarter, economists
noted a jump in spending on durable goods and said they were
uncertain how much spending was really buckling given problems
calculating outlays for healthcare.
Healthcare spending has been volatile with the implementation of
President Barack Obama's signature law early this year, but the
swings should subside as the year progresses, economists said.
"We have evidence of consumer spending continuing at a very good
pace in June. That limits my concerns," said Anthony Karydakis,
chief economic strategist at Miller Tabak in New York.
Consumer spending increased 0.2 percent in May after being flat in
April, and was down for a second straight month when adjusted for
inflation, the Commerce Department said.
That suggests consumer spending, which accounts for more than
two-thirds of U.S. economic activity, could struggle to regain
momentum this quarter after growing at its slowest pace in nearly
five years in the first three months of the year.
Spending in May was probably constrained by healthcare, as
inflation-adjusted outlays on services fell for a second month.
Spending on automobiles, however, surged, accounting for more than
half of the 1 percent rise in durable goods.
At the same time, income increased for a fifth successive month,
with savings hitting an eight-month high.
"This should give some ammunition for consumers going forward," said
Eugenio Aleman, a senior economist at Wells Fargo Securities in
Charlotte, North Carolina, who nevertheless cautioned that rising
gasoline prices presented a risk.
Healthcare was behind a sharp downward revision to first-quarter
gross domestic product data, released on Wednesday. The government
slashed its growth estimate to show the economy contracting at a 2.9
percent annual rate, the worst performance in five years, instead of
only a 1 percent pace.
In the wake of the spending data, second-quarter growth estimates
which had ranged as high as a 4.0 percent rate were cut to as low as
a 2.2 percent pace.
INFLATION TRENDING HIGHER
U.S. stocks were trading lower, pressured by comments from a top
Federal Reserve official who said the central bank might need to
move interest rates up more quickly than markets expect. U.S.
Treasury debt prices rose, while the dollar was little changed
against a basket of currencies.
In a separate report, the Labor Department said new applications for
state unemployment benefits slipped 2,000 to a seasonally adjusted
312,000 for the week ended June 21.
The declining claims suggest a recent streak of monthly payroll job
gains above 200,000 is likely to be sustained, lending the economy
enough momentum for inflation to start perking up.
A price index for consumer spending increased 0.2 percent in May,
rising by the same margin for a third consecutive month.
In the 12 months through May, the personal consumption expenditures
(PCE) price index was up 1.8 percent, the largest gain since October
2012. It had advanced 1.6 percent in April.
Excluding food and energy, prices also posted a 0.2 percent gain.
This so-called core index increased 1.5 percent from a year ago, the
biggest gain since February last year.
Both gauges, however, remain below the Fed's 2 percent goal.
"These are not scary inflation numbers by any means but we are
getting close to the Fed's target," said John Ryding, chief
economist at RDQ Economics in New York. "The inflation rate is
another signal that suggests the Fed should begin renormalizing
monetary policy sooner than the market expects."
St. Louis Federal Reserve Bank President James Bullard told Fox
Business News that his forecasts suggest inflation would reach the
central bank's target this year with the jobless rate falling below
6 percent. It stood at 6.3 percent in May.
"You are basically going to be near normal on both dimensions
basically later this year," he said. "That's shocking, and I don't
think markets, and I'm not sure policymakers, have really digested
that that's where we are."
The Fed, which is scaling back the amount of money it is pumping
into the economy through monthly bond purchases, has kept its
benchmark lending rate near zero since December 2008.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)
