Commerce Dept Reports Consumer Spending Increased in May

Washington—Consumer spending—a key growth engine for the U.S. economy–edged up in May after being flat in April but still hitting an eighth month high.

In a report released today, the U.S. Commerce Department says its figures indicted that consumers are gradually resuming spending as their incomes rise and as retail prices continue to be low.

Consumer spending increased 0.2% last month after a flat reading in April. Incomes rose 0.4% in May, helped by slow improvements in the jobs market, following a 0.5% increase in April.

However, U.S. consumers still show signs of being cautious as savings increased again. Americans saved $454.3 billion in May as the national saving rate rose to 4.0% from 3.8% in April.

While the Commerce figures were slightly better than the 0.1% increase expected by most analysts, Joel Naroff of Naroff Economic Advisors, said: “People continue to shop cautiously and until spending improves, this recovery will remain anaemic,” said Joel Naroff of Naroff Economic Advisors.

While the latest figures indicate the U.S. economy started reviving from a severe recession in the second half of 2009 aided by the federal stimulus and low interest rates, there’s still a long way to go. For growth to continue, household spending and business investment has to make up for the stimulus money. Since consumer purchases, which account for more than 70% of nation’s economic activity, are still being stymied by a high unemployment rate and large debut loads.

Inflation Remains Subdued

Meantime, inflation remained subdued. The commerce department’s closely watched price gauge ticked up by 0.2% in May from the previous month and was up by 1.3% year-on-year.

On Friday, the government said the economy grew at a 2.7% annual rate in the January-to-March quarter, lower than previously estimated. Many analysts expect the economy will grow at about 3% in the current quarter.

The Federal Reserve last week was more cautious about U.S. economic growth, pointing out that Europe’s debt crisis has led to tighter financial conditions.

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