U.S. consumer spending falls in May - Slight drop is first since November; incomes, savings rate increase
29 June 2012
, by Jeffry Bartash - Washington (MarketWatch)http://www.marketwatch.com/story/us-consumer-spending-eases-in-may-2012-06-29Consumers cut back on spending in May and increased their savings, another sign that the U.S. economy has cooled off, government data showed Friday
Personal spending fell less than 0.1% in May, the first decline since last November, the Commerce Department said. And spending for April and March were revised lower.
Consumer spending is the biggest source of U.S. growth, accounting for more than two-thirds of economic activity.
Yet spending has barely changed over the past four months, indicating consumers have grown more cautious and they are trying to rebuild their savings.
A sharp decline in U.S. hiring and the growing threat of a financial crisis in Europe largely explain why consumers are less confident now than they were just a few months ago. Read latest report on consumer confidence http://www.marketwatch.com/story/consumer-sentiment-lowest-since-december-2012-06-29-101032214
Businesses, for their part, have less reason to hire and boost production if consumer demand slackens, especially as exports weaken amid a global slowdown.
And without more hiring, consumer spending is likely to remain subdued even though gas prices have fallen sharply from 2012 highs.
The “recent fall in gasoline prices will soon boost real consumption,” said economist Paul Dales of Capital Economics, “ but a sustained and significant acceleration in consumption growth cannot take place without faster jobs growth too.”
As is usually the case, worries about the economy tend to spur consumers to sock away more cash.
The savings rate, which fell to a four-year low in February, climbed to 3.9% last month from 3.7% in April. It stood as high as 5% less than one year ago, however.
Americans were able to save more money partly because incomes rose 0.2% in May. And inflation-adjusted disposable income — money left over after taxes — climbed 0.3%, largely reflecting the drop in gasoline prices.
Economists surveyed by MarketWatch had forecast no increase in spending for the month along with a 0.2% increase in personal income.
The drop in gas prices at the pump has also eased inflationary pressure: The PCE price index fell 0.2% last month to mark the first pullback in more than two years.
Over the past 12 months the inflation gauge has risen 1.5%, down from 1.9% in April.
The core PCE index, which excludes food and energy inputs, rose 0.1% last month.
It’s up 1.8% over the past year, down from April’s 2.0% rate.
In April, meanwhile, the government revised its original 0.3% increase in spending to a scant 0.1% gain.
And spending in March was revised down to a 0.1% increase from 0.2%.
In another negative sign, wages in the U.S. manufacturing sector fell by $4.5 billion in May, a reversal after having risen by $3.2 billion in April.
The decline suggests hiring or worker hours may have been scaled back last month.
U.S. manufacturers, who’ve led the recovery since the recession ended in mid-2009, are facing stronger headwinds in Europe and in Asia, where economic signs point to slower growth.
A raft of recent indicators suggest the domestic manufacturing sector is now slowing as well