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Consumer Spending in U.S. Increased in May More Than Expected

Posted on 28 Jun 2010

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Consumer spending in the U.S. rose in May more than forecast, a sign households are gaining confidence in the recovery and the job market.

Purchases rose 0.2 percent after little change the prior month, Commerce Department figures showed today. Incomes climbed 0.4 and the savings rate increased to the highest level in eight months.

Demand may accelerate as gains in payrolls, longer workweeks and rising pay are giving Americans the means to spend. Federal Reserve policy makers last week pledged to keep interest rates low to ensure households weather the fallout from the European debt crisis, unemployment hovering near a 26-year high and tight credit.

“The labor market is gradually improving, labor income is picking up and that should continue to support spending,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, said before the report. “We see a solid, trend-like growth in spending” in coming months.

The median estimate of 61 economists surveyed by Bloomberg news called for a 0.1 percent gain in spending. Projections ranged from an increase of 0.3 percent to a 0.5 percent drop.

The median estimate of economists surveyed called for a 0.5 percent advance in incomes. Wages and salaries in May rose 0.5 percent for a second month.

The savings rate increased to 4 percent last month, the highest level since September, to $454.3 billion.