US consumer spending rose for a second straight month in May on increased demand for automobiles and other goods, but there are fears Britain’s vote to leave the European Union could hurt confidence and prompt households to cut back on consumption.
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Americans moderated their spending in May after splurging in April, but the pace of consumer purchases in the past two months points to a strong rebound in US economic growth in the second quarter.
Meanwhile, the Commerce Department also said personal spending climbed by 0.4 percent in May after spiking by an upwardly revised 1.1 percent in April.
Spending in durable goods, those created to last three years or more, moved 0.6% higher while nondurable spending increased 0.5%.
When adjusted for inflation, consumer spending rose 0.3% after gaining 0.8% in April.
Steve Murphy, U.S. economist at Capital Economics, said increases in real spending in April and May imply “that even if spending was unchanged in June, second-quarter real consumption growth will be as strong as at 4% annualized”. The Brexit is the latest complication for global markets and central bankers. Most global equities have since recouped some of the losses, with stock markets in Europe and Asia rising for a second day on Wednesday.
U.S. stocks rose on Wednesday, with the main indexes gaining more than one percent in morning trade. The University of Michigan’s consumer sentiment index, out last Friday, registered deterioration in consumers’ spirits this month.
With an increase in May and upward revision to April, the volume of personal consumption expenditures moved closer to a 4% annualized rate and would represent a significant bounce-back following the 1.5% first-quarter gain that marked the smallest quarterly increase in two years, according to RBC Economics. Spending on nondurable goods, such as food and clothing, grew 0.5 per cent. Spending on non-durable goods rose 0.5%, while outlays for services were up 0.1%.
Inflation remained muted and below the Federal Reserve’s 2.0 percent year-over-year target.
Growth in income moderated last month. Wages and salaries advanced 0.2%.
A separate report from the National Association of Realtors on Wednesday showed contracts to purchase previously owned homes fell 3.7 per cent in May after a cumulative 8.9 per cent surge in the previous three months.
The decline likely reflects a dearth of properties available for sale, which is pushing up house prices.
The saving rate eased to 5.3%, the lowest this year, from 5.4%.
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“The consumer seems reasonably well supported”, James Sweeney, chief economist at Credit Suisse Securities in NY, said before the report.
