the republic logo

US consumer spending climbs 0.9 pct. in May; biggest jump since 2009 hints at faster growth

bug
Share/Save/Bookmark

WASHINGTON — U.S. consumer spending surged in May with the biggest monthly increase in nearly six years — a sign of stronger economic growth ahead.

The Commerce Department said Thursday that consumer spending rose 0.9 percent last month, up from a revised 0.1 percent increase in April. May spending registered the biggest gain since August 2009, when the government's "Cash for Clunkers" program fueled auto-buying.

The increased spending last month suggests that the positive impacts from solid hiring and cheaper gasoline are starting to ripple through the economy.

"We are finally seeing signs of consumers beginning to spend the gasoline savings they have been sitting on since the start of this year," said Paul Ashworth, chief U.S. economist at Capital Economics.

Personal income also increased a healthy 0.5 percent. The savings rate for after-tax income fell slightly to 5.1 percent from 5.4 percent.

Until recently, lower gas prices and an improved job market were not enough to unlock greater consumer spending. Instead, Americans ramped up their savings. This helped put their personal finances on a more sustainable path, but it limited the ability of the overall economy — which relies mostly on consumer activity — to grow at a faster pace and potentially boost their incomes.

The consumer spending report confirms signs elsewhere that people are loosening the grip on their wallets.

Retail sales climbed 1.2 percent between May and April, led by auto dealers, clothiers and building materials stores, the Commerce Department reported earlier this month.

Spending at retailers is up 2.7 percent over the past 12 months. This includes annual gains of 8.2 percent in both the auto and restaurant categories.

All of that could lead to more hiring, a tighter supply of job applicants and larger pay hikes, economists say.

The greater spending on building materials also corresponds with a surge in home-buying.

Sales of existing homes in May jumped 5.1 percent to an annual pace of 5.35 million, the National Association of Realtors said Monday. The real estate market is on pace for its strongest year since 2007, the last full year before the recession.

Purchases of new homes have also jumped, registering a 24 percent increase year-to-date, according to the government.

Many economists believe it was the severe winter weather that froze consumer spending earlier this year, before a bounce back this spring. The overall economy shrank in the first three months of the year at an annual rate of 0.2 percent. But some analysts say revitalized consumer spending should lift growth back to a respectable annual rate of 2.5 percent or better in the April-June quarter.

Consumer spending may be aided by two major factors.

Americans are saving money at the pump. Gasoline costs have stabilized in recent weeks. At a national average of $2.78 a gallon, they remain about 90 cents below their average a year ago, according to the AAA's Daily Fuel Gauge Report.

Also, the economy has added 3.1 million jobs over the past year and the unemployment rate has fallen to 5.5 percent from 6.3 percent. The influx of paychecks generally leads to additional spending by the newly employed.

PHOTO: In this photo taken Tuesday, June 9, 2015, shopper Julian Fojon-Losada, of Georgia, checks a coconut at a local fruit store in the Little Havana area of Miami. The Commerce Department releases its May report on consumer spending, which accounts for 70 percent of economic activity, on Thursday, June 25, 2015. (AP Photo/Alan Diaz)
In this photo taken Tuesday, June 9, 2015, shopper Julian Fojon-Losada, of Georgia, checks a coconut at a local fruit store in the Little Havana area of Miami. The Commerce Department releases its May report on consumer spending, which accounts for 70 percent of economic activity, on Thursday, June 25, 2015. (AP Photo/Alan Diaz)

Think your friends should see this? Share it with them!

Story copyright 2015 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Feedback, Corrections and Other Requests: AP welcomes feedback and comments from readers. Send an email to info@ap.org and it will be forwarded to the appropriate editor or reporter.


We also have more stories about:
(click the phrases to see a list)

Category:

Follow The Republic:

All content copyright ©2015 The Republic, a division of Home News Enterprises unless otherwise noted.
All rights reserved. Privacy policy.