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US consumer spending flat in May on autos.

Summary: WASHINGTON - US consumer spending was unchanged in May for the first time in almost a year, likely reflecting a plunge in auto sales, according to a government report on Monday, that also showed a build-up in underlying inflation pressures.

WASHINGTON - US consumer spending was unchanged in May for the first time in almost a year, likely reflecting a plunge in auto sales, according to a government report on Monday, that also showed a build-up in underlying inflation pressures.

The flat reading in consumer spending came after 10 straight months of gains, the Commerce Department said, and followed a downwardly revised 0.3 percent gain in April.

Economists polled by Reuters had expected spending, which accounts for about 70 percent of US economic activity, to gain only 0.1 percent last month after a previously reported 0.4 percent rise in April.

When adjusted for inflation, spending fell 0.1 percent in May, declining for a second straight month. Spending on durable goods fell 1.5 percent after being flat in April.

Spending last month was probably held back by a sharp drop in motor vehicle purchases as disruptions to auto production due to a shortage of parts in the aftermath of Japan's March earthquake and tsunami left some models out of stock.

May's weak reading suggests that consumer spending, which has been hampered by high gasoline prices, in the second quarter will be much slower than the 2.2 percent annual rate recorded in the first three months of the year.

While the report fits in with other data illustrating the loss of momentum in the economy, falling gasoline prices should lift spending and therefore growth in the third quarter.

Gasoline prices have dropped significantly from their peak of $4.02 a gallon in early May. Despite retreating gasoline prices, underlying inflation pressures continue to percolate.

The personal consumption expenditures price (PCE) index rose 0.2 percent after rising 0.3 percent in April. Compared to May last year, the index was up 2.5 percent, the largest rise since January 2010, after increasing 2.2 percent in April.

The core PCE index -- excluding food and energy -- increased 0.3 percent, the largest increase since October 2009, after rising 0.2 percent the prior month.

The core index, which is closely watched by Federal Reserve officials, increased 1.2 percent in the 12 months through May, the biggest increase since August. The index rose 1.1 percent year-on-year in April and the Fed would like to see it close to 2 percent.

Incomes rose 0.3 percent last month, slightly below expectations for a 0.4 percent increase. Incomes gained 0.3 percent in April.

Disposable incomes adjusted for inflation edged up 0.1 percent, while savings roser to an annual rate of $591.1 billion from $568.0 billion in April.

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Publication:Khaleej Times (Dubai, United Arab Emirates)
Date:Jun 27, 2011
Words:488
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