Flat consumer spending weakest in 6 months

By Lucia Mutikani, Reuters

WASHINGTON - U.S. consumer spending was flat in May for the first time in six months as demand for motor vehicles waned, but weak inflation pressures should ease the burden on cash-strapped households.

The Commerce Department said on Friday April's consumer spending was revised down to show only a 0.1 percent rise instead of the previously reported 0.3 percent gain.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, was also held back by weak sales at service stations as the pump price of gasoline fell from lofty levels early in the year.

"We're seeing consumer spending come off the boil a bit over the last few months. That's to be expected, given uncertainty across the board and the troubling headlines we've seen," said Omer Esiner, chief analyst at Commonwealth Foreign Exchange in Washington.

U.S. stock index futures held onto sharp gains after the data, while Treasury debt prices maintained earlier losses. The dollar held onto losses versus the euro.

Spending rose 0.1 percent after adjustment for inflation. The small rise could cause economists to tweak their second-quarter forecasts for real consumer spending - currently in a range of 2 percent to 2.3 percent.

Spending grew at a 2.5 percent annual rate in the first quarter, with the overall economy expanding at a modest 1.9 percent rate.

Weak gasoline prices put downward pressure on inflation last month. A price index for personal spending fell 0.2 percent in May, the first decline in a year. The index was flat in April.

In the 12 months through May, the PCE index was up 1.5 percent, the smallest increase since January last year. It increased 1.9 percent in April.

CNBC's Rick Santelli reports monthly data on personal income and consumer prices.

A core measure that strips out food and energy costs advanced 0.1 percent last month after rising by the same margin in April. In the 12 months through May, the core PCE rose 1.8 percent, slowing from 2.0 percent the prior month.

Last month, spending on long lasting goods, like autos, fell 0.4 percent after dipping 0.2 percent in April. Auto sales had been boosted by pent-up demand after last year's earthquake and tsunami in Japan left showrooms bereft of popular models.

Automakers reported unit sales declined in May.

Spending on nondurable goods fell 0.8 percent, with services advancing 0.3 percent.

Weak income growth as the economy struggles to generate enough jobs to cut into high unemployment is also curbing spending. Income rose 0.2 percent after a similar gain in April. The increase was in line with economists' expectations.

The amount of income available to households after accounting for taxes and inflation, rose 0.3 percent. That followed a 0.1 percent gain in April.

With spending less than income, the saving rate rose to 3.9 percent from 3.7 percent the prior month.

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Source: http://economywatch.msnbc.msn.com/_news/2012/06/29/12479530-flat-consumer-spending-weakest-in-6-months?lite

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