Consumer spending in U.S. rebounded in May as incomes rose

Consumer spending in the U.S. rebounded in May following the largest drop in more than three years, a sign the biggest part of the economy will underpin growth this quarter.

Household purchases, which account for about 70% of the economy, rose 0.3% after a 0.3% decline the prior month that was the biggest since September 2009, Commerce Department figures showed today in Washington. Incomes advanced 0.5%, more than projected.

The report may help ease concern about the outlook for the economic expansion after data yesterday showed household purchases rose at a slower pace than previously estimated in the first quarter. Rising home prices and an improving job market, combined with faster income gains, may help to accelerate spending in the last six months of 2013.

“Consumer spending will continue to be the driver of the recovery,” said Tom Simons, an economist at Jefferies LLC in New York, who accurately predicted the gain in purchases. “The second half looks better. The labor market is continuing to improve. The housing rebound will help as well.”

Jobless claims decreased by 9,000 to 346,000 in the week ended June 22 from a revised 355,000 the prior period, a Labor Department report also showed today. Smaller reductions in headcounts indicate employers are confident enough that demand will be sustained as the housing market improves and consumers grow more optimistic.

Shares Rise

Stocks rose as another report showed more Americans than forecast signed contracts to purchase previously owned homes. The Standard & Poor’s 500 Index advanced 0.9% to 1,616.93 at 10:26 a.m. in New York.

The National Association of Realtors’ index of pending home sales jumped 6.7% in May to 112.3, the highest since December 2006. The increase exceeded all estimates in a Bloomberg survey of economists and was the biggest since April 2010.

The median projection of 83 economists in a Bloomberg survey called for a 0.3% rise in spending. Projections ranged from gains of 0.1% to 0.7%. The April reading was previously reported as a drop of 0.2%.

The Bloomberg survey median called for incomes to rise 0.2%. The prior month’s income figure was revised up to show a 0.1% gain from unchanged.

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