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Personal Spending Rises 1%

From Bloomberg News

U.S. personal spending rose 1% last month from April, the biggest rise since October 2001, and a gauge of inflation matched the largest gain in almost 14 years as the economy and job market improved.

The increase in purchases followed a 0.2% rise in April and reflected more spending on automobiles and other durable goods, the Commerce Department said Monday. The report’s price index rose 0.5%, partly because of fuel prices, and hasn’t seen a bigger one-month jump since September 1990.

Federal Reserve policy makers are forecast Wednesday to raise their target for the benchmark interest rate from the lowest since 1958 to prevent inflation from accelerating.

Adjusted for the 0.5% rise in the report’s price index, spending rose 0.4%, the Commerce Department said.

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Incomes rose 0.6% for a second month. Disposable income, or the money left over after taxes, also increased 0.6% for a second month. Adjusted for the rise in inflation, disposable income was unchanged last month after a 0.4% rise in April.

“A surprising portion of the strength in U.S. income growth through the first and second quarters has been absorbed by price increases,” said Michael Englund, chief economist at Action Economics in Boulder, Colo.

Rising incomes reflect an economy that has created 1.2 million jobs this year. Wages and salaries rose 0.7% in May, the most since January. Sales at retailers are improving as rising earnings keep consumers in the mood to spend.

The personal consumption expenditures price index has not risen more than 0.5% since September 1990. The gauge rose 2.5% from May 2003. The price index excluding volatile food and energy prices, a gauge tracked by Federal Reserve Chairman Alan Greenspan and other policy makers, rose 0.2% for a third month and is up 1.6% since May 2003.

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