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.
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.
Gross domestic product grew at a 1.8% annualized rate from January through March, down from a prior reading of 2.4%, Commerce Department data showed yesterday. Consumer purchases were trimmed to a 2.6% advance -- still the fastest in two years -- from the 3.4% gain estimated last month as Americans cut back on services from vacations to legal advice.
The saving rate increased to 3.2% from 3%. Wages and salaries climbed 0.3%.
Disposable income, or the money left over after taxes, increased 0.4% after adjusting for inflation, today’s report showed. It climbed 0.3% in the prior month.
Adjusting consumer spending for inflation, which renders the figures used to calculate gross domestic product, purchases rose 0.2% in May after a 0.1% decrease in the previous month, today’s report showed.
Price-adjusted spending on durable goods, including automobiles, increased 1% in May, the biggest gain so far this year, after a 0.2% advance the prior month. Purchases of non-durable goods, which include gasoline, rose 0.5%.
Household outlays on services dropped 0.1% in May for a second month. The category, which accounts for about 64% of the total, is typically difficult for the government to estimate. Spending on services grew 1.7% in the first quarter, revised down from a prior estimate of 3.1%, accounting for most of the downward revision in household spending, figures yesterday showed. The update reflected new information from a government survey.
The Commerce Department’s price index tied to spending, the gauge tracked by Federal Reserve policy makers, increased 0.1%. The so-called core price measure, which excludes food and fuel, also rose 0.1% from the prior month and was up 1.1% from May 2012, matching the record low.
One area of spending that remains a bright spot is automobiles. Cars and light trucks sold at a 15.2 million annualized rate in May, putting 2013 on course to be the best year for the industry since 2007, data from automakers show. Ford Motor Co. said it is adding 2,000 workers and a third shift at its F-150 factory in Missouri to increase production of pickups beginning in the third quarter.
Americans are also buying property. New home sales jumped in May to a five-year high, data showed this week. The demand is fueling real-estate values, helping to boost wealth. House prices in 20 U.S. cities in April had the biggest year-over-year gain since March 2006, according to S&P/Case-Shiller figures.
Kroger Co., a supermarket and convenience store chain based in Cincinnati, is among companies watching for signs of how customers may fare in coming months.
“While there are signs of a better economy, the improvement is not robust,” David Dillon, chief executive officer, said in a June 20 earnings call. “Consumer sentiment is gradually improving, but remains fragile. We continue to see high variability in sales comparisons between days and weeks.”
The Fed will probably taper its $85 billion in monthly bond buying later in 2013 and halt purchases around mid-2014 as long as the economy performs in line with its projections, Chairman Ben S. Bernanke told reporters on June 19 after policy makers’ two-day meeting.