Consumer spending shows solid gains even as income growth slows

Danielle Shub shops for merchandise at the MVM Miami store in Miami on May 31.
(Photo by Joe Raedle/Getty Images)

Americans continued their spring spending spree last month after a slow winter, signaling an improved economic expansion in the second quarter.

Consumer spending increased 0.4% in May, even as income growth slowed, the Commerce Department said Wednesday.

For the record:

2:45 p.m. June 29, 2016An earlier version of this article said Federal Reserve Gov. Jerome Powell spoke on Thursday night. He spoke on Tuesday night.

The spending figure was down sharply from a 1.1% 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% 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%, down from a 0.5% 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%.

The U.S. economy expanded at just a 1.1% 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% 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 sell-offs in U.S. stock indexes until they rebounded Tuesday and Wednesday.

In a Tuesday night speech in Chicago, 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.

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