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U.S. May Personal Spending Unchanged; Incomes Rise 0.2%

U.S. May Personal Spending Unchanged; Incomes Rise 0.2%

June 30 (Bloomberg) -- U.S. personal spending stalled in May after increasing in each of the prior three months, as consumers bought fewer automobiles, and cool weather restrained purchases of summer clothing.

Purchases were unchanged after rising 0.6 percent in April, the Commerce Department reported today in Washington. Spending was forecast to rise 0.1 percent in May, according to the median estimate in a Bloomberg News survey of economists. Incomes rose 0.2 percent after a 0.6 increase the previous month.

Retail reports this month point to a rebound in clothing sales as the weather turned more seasonable. Auto purchases probably also picked up, suggesting consumers are overcoming near- record gasoline prices. Federal Reserve policy makers today are expected to raise their target rate for a ninth straight time to keep inflation from accelerating as the economy grows.

``We're in a deceleration, but we don't see the consumer packing up and going home,'' said Nariman Behravesh, chief economist at Global Insight, a Lexington, Massachusetts forecasting firm, before the report. ``The Fed is succeeding in what it set out to do. It's making sure that inflation doesn't get out of control.''

The report's price gauge tied to spending patterns and excluding food and energy costs, Fed policy makers' preferred measure for tracking inflation, rose 0.2 percent last month and was up 1.6 percent from May 2004. The central bank earlier this year projected the price index would rise 1 percent to 2 percent this year. Prices including food and energy were unchanged last month and were up 2.2 percent since May 2004.

``The Fed currently sees inflation as a greater risk than slower growth,'' said Dean Maki, chief U.S. economist at Barclays Capital in New York, before the report. ``We expect the Fed to continue to see a steady tightening path as the most prudent course of action and to signal as much in the statement.''

Incomes

The central back is expected to announce their decision at about 2:15 p.m. in Washington.

Incomes were forecast to rise 0.3 percent after a previously reported 0.7 percent increase, according to the median estimate in a Bloomberg News survey.

Incomes were up 6.7 percent last month from May 2004, paced by a 7 percent gain in wages and salaries. Disposable income, or the money left over after taxes, increased 0.2 percent in May following a 0.5 percent rise the previous month and were up 3.2 percent in the last 12 months.

Taking into account changes in prices, spending was unchanged last month after a 0.2 percent increase.

Spending

Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, fell 2 percent after rising 0.6 percent. Purchases of non-durable goods were unchanged after rising 0.6 percent. Spending on services, which account for almost 60 percent of all outlays, increased 0.4 percent after no change.

The personal savings rate, which weighs current income from wages, salaries, dividends, businesses and government payments against spending, rose 0.6 percent from 0.5 percent. It doesn't take into account borrowed money, income from investments, or withdrawals from prior savings.

This month, spending has accelerated as the weather warmed, economists said. Same-store sales at U.S. retailers probably rose 4.5 percent in June from the same month last year, compared with a previous estimate of as much as 4 percent, according to a forecast by Michael Niemira, chief economist at the International Council of Shopping Centers.

Wal-Mart Stores Inc., the world's largest retailer, said June 25 that sales at its U.S. stores open at least a year are rising within its forecast range of 2 percent to 4 percent after a 2.5 percent increase in May. Target Corp., the second-largest U.S. discount retailer, earlier this month said it expects June sales will exceed its forecast of a 4 percent to 6 percent gain.

Rebound in Auto Sales

Auto sales this month probably also picked up as General Motors Corp. boosted incentives. Sales improved to a 17 million annual pace, the second highest so far this year, from 16.7 million in April, according to the median estimate of economists surveyed by Bloomberg News.

Some General Motors dealers this month said sales were up 20 percent to 50 percent compared to June 2004 after the Detroit- based automaker offered employee discounts to all U.S. buyers.

``June is shaping up for a vigorous rebound'' in consumer spending, said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut, before the report.

The improved outlook and upward revisions to previous data have prompted some economists to boost their forecast for second- quarter spending. Consumption may rise at a 3.8 percent annual rate from April through June compared with a 3.1 percent forecast earlier this month, according to economists at Morgan Stanley.

Energy Costs

Spending probably rose at a 3.2 percent pace this quarter after growing 3.6 percent the previous three months, according to the median estimate of economists surveyed by Bloomberg News from May 31 to June 8.

The jump in crude oil prices this week to a closing record of $60.54 a barrel will probably lead to higher gasoline prices, one reason why consumer spending and the economy are likely to slow in the second half of the year, according to economists such as David Rosenberg.

``Oil around $60/barrel is a drain on consumer spending and a squeeze on corporate profit margins,'' said Rosenberg, chief North American economist at Merrill Lynch & Co. in a report to clients. Spending will probably grow at a 2.8 percent pace in the last six months of 2005, he said.

Airlines are among the companies feeling the pinch.

``Energy prices are driving everything right now,'' Gary Kelly, chief executive of Southwest Airlines Co. said in an interview June 24. Fares have yet to return to the levels seen before the terrorist attacks on September 2001, ``and we have a whole new ballgame with these high energy prices,'' he said.

Southwest Airlines was the only major U.S. carrier to remain profitable since 2001 and Kelly said rising fuel prices and low fares will prolong losses in the industry in this year's second half.

To contact the reporters on this story:
Carlos Torres in Washington [e-mail].
Joe Richter in Washington [e-mail].


LINK: http://www.bloomberg.com/apps/news?pid=10000103&sid=a7Aa4_QHSdHk&refer=us