Consumer Spending Shows Solid Gains Even As Income Growth Slows

ConsumersAmericans continued their spring spending spree last month after a slow winter even as the growth in their incomes slowed, signaling an improved economic expansion in the second quarter.

Consumer spending increased 0.4 percent in May, the Commerce Department said Wednesday.

The figure was down sharply from a 1.1 percent gain the previous month, but that was the best in nearly seven years.

The April jump was spurred by pent-up demand after slow growth during the winter amid a stock market decline fueled by concerns about the global economy.

As financial markets rebounded this spring, economists expected consumers to become less cautious. However, those improvements could be stalled by new concerns caused by Britain?s vote to leave the European Union.

The 0.4 percent spending figure in May was a solid gain and is consistent with a rebound in overall economic growth expected in the second quarter.

The consumer spending gains last month came despite a slowdown in income growth.

Personal income increased 0.2 percent, down from a 0.5 percent jump in April.

With spending growth outpacing income growth, consumers saved at a slower pace last month. The percentage of disposable income saved dropped by 0.1 percentage point, to 5.3 percent.

The U.S. economy expanded at just a 1.1 percent annual rate in the first quarter of the year amid concerns about the global economy, although the figure was much higher than initially estimated.

Part of the reason for the anemic growth was weak consumer spending as Americans saw their 401(k) plans shrink with sinking stock prices.

Analysts expect overall economic growth to improve to about 2.6 percent in the second quarter, boosted by stronger consumer spending.

But consumers could be rattled in the coming months by the ?Brexit? vote, which triggered two days of sharp selloffs in U.S. stock indexes until they rebounded Tuesday.

Federal Reserve Gov. Jerome Powell said the vote has added to the global risks facing the U.S. economy, but that it is ?far too early? to judge its potential effects.

?The Brexit vote has the potential to create new headwinds for economies around the world, including our own,? Powell said Thursday night in a speech in Chicago.

?The risks to the global outlook were somewhat elevated even prior to the referendum, and the vote has introduced new uncertainties,? he said.

Fed officials are ?carefully monitoring developments in global financial markets,? Powell said.

Although financial conditions have tightened since the vote, ?markets have been functioning in an orderly manner,? he said.

(Source: TCA)