U.S. consumer spending slowed in May, but underlying inflation pressures remain strong and could force the Federal Reserve to continue raising interest rates next month.
The Commerce Department said on Friday that consumer spending rose 0.1 per cent last month. April’s data were adjusted to 0.6 per cent instead of the previous 0.8 per cent to show accelerated spending. Economists polled by Reuters had forecast a 0.2 per cent rise in consumer spending, accounting for more than two-thirds of U.S. economic activity.
Last month’s slight gains indicate that consumer spending subsided in the second quarter after rising at the fastest pace in nearly two years from January to March. But the pace may still be able to help sustain the economy’s expansion. Strong consumer spending contributed to the economy’s 2.0 per cent annual growth in the previous quarter, defying fears of a recession due to large interest rate increases imposed by the US central.
Encouraging data for May, which included job growth, the number of new housing construction projects and orders for durable goods, led economists to expect GDP growth in the second quarter to be close to the first quarter rate. The Atlanta Federal Reserve currently estimates a 1.8 per cent GDP increase this quarter.
Consumer spending continues to be supported by strong wage gains in the scarce labour market. But expectations are less optimistic. Most low-income households are believed to have exhausted the savings they accumulated during the COVID-19 pandemic.
