Consumer spending unexpectedly stagnated in May as employment prospects dimmed and rising inflation caused Americans to cut back.
Purchases were little changed, the weakest outcome since June 2010, after a revised 0.3% gain the prior month that was smaller than previously estimated, Commerce Department figures showed today in Washington. The median of economists surveyed by Bloomberg News called for a 0.1% gain. Prices excluding food and energy rose more than forecast.
Walgreen Co. (WAG) is among retailers that indicated 9.1% unemployment and higher gas and grocery bills have prompted shoppers to pare back purchases of less essential goods. Federal Reserve policy makers said the restraint on purchasing power may prove temporary as commodities prices start to decline, allowing the economy to pick up later this year.
"The quarter is going to be very slow," said Christopher Low, the chief economist at FTN Financial in New York who correctly forecast household spending. "The biggest explanation for that is gas prices, so obviously the fact that oil has fallen quite a bit in the last couple of weeks is a really good thing. Relief just in time."
Estimates from 70 economists surveyed by Bloomberg ranged from declines of 0.3% to gains of 0.3% after a previously reported 0.4% gain the prior month.
The report showed incomes increased 0.3% for a second month. The gain was also less than forecast.
Wages and salaries increased 0.2% in May after climbing 0.4% a month earlier.
Because incomes rose as spending stagnated, the savings rate rose to 5% from 4.9% in April.
Today’s report also showed inflation picked up from a year ago. The gauge tied to consumer spending patterns increased 2.5% from May 2010, following a 2.2% gain in the 12 months ended in April.
The Fed’s preferred price measure, the so-called core inflation reading that excludes food and fuel, rose 1.2% in May from a year earlier, compared with the 1.1% advance in April. It rose 0.3% in May from the prior month, the biggest one-month gain since October 2009.
