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Consumer spending up 0.3% last month

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By The Associated Press
Thursday, June 27, 2013, 7:12 p.m.

WASHINGTON — Consumers spent more in May as their income rose, encouraging signs after a slow start to the year. But spending was weaker in April, February and January than had been estimated.

The Commerce Department said Thursday that consumer spending rose 0.3 percent last month, nearly erasing a similar decline in April. Income rose 0.5 percent.

At the same time, economists said the downward revisions to spending for three of the first four months of the year signal weaker growth in the April-June quarter, which ends this week.

Paul Dales, senior national economist at Capital Economics, said he thinks growth has slowed in the second quarter at an annual rate of just 1.5 percent. That's down from his previous forecast of a 2 percent rate. Economists at Barclays have cut their forecast from an annual rate of 1.8 percent to a sluggish rate of 1.4 percent.

Tepid growth could keep the Federal Reserve from scaling back its bond purchases this year. Chairman Ben Bernanke spooked investors last week when he said the Fed is likely to slow its bond-buying this year if the economy continues to strengthen. Bernanke added that if the economy weakens, the Fed won't hesitate to delay its pullback or even step up its bond purchases again.

Dales noted that the inflation gauge the Fed watches most closely has dropped to a record low of 1.1 percent, well below the Fed's 2 percent target. When inflation falls too low, the Fed normally keeps rates low to try to boost prices.

Economists are hopeful that growth will pick up in the second half of the year, and some recent data have been encouraging. Consumers, benefiting from low inflation, spent more at retail businesses in May, notably for cars, home improvements and sporting goods.

American factories are fielding more orders. Higher home sales and prices are signaling a steady housing recovery. And employers added 175,000 jobs last month, in line with the average job growth over the past 12 months.

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