Slight drop is first since November; incomes, savings rate increase
By Jeffry Bartash, MarketWatch
WASHINGTON (MarketWatch) — Consumers cut back on spending in May and increased their savings, another sign that the U.S. economy has cooled off, government data showed Friday.
Personal spending fell less than 0.1% in May, the first decline since last November, the Commerce Department reported. And spending for April and March were revised lower.
Consumer spending is the biggest source of U.S. growth, accounting for more than two-thirds of economic activity. Yet spending has barely changed over the past four months, indicating consumers have grown more cautious and are they trying to rebuild their savings.
The savings rate, which fell to a four-year low in February, climbed to 3.9% last month from 3.7% in April.
Americans were able to save more money partly because incomes rose 0.2% in May. And inflation-adjusted disposable income — money left over after taxes — climbed 0.3%, largely reflecting a sharp drop in gasoline prices.
Economists surveyed by MarketWatch had forecast no increase in spending for the month along with a 0.2% increase in personal income.
The drop in gas prices at the pump has also eased inflationary pressure: The PCE price index fell 0.2% last month to mark the first drop in more than two years.
Over the past 12 months, the inflation gauge has risen 1.5%, down from 1.9% in April.
The core PCE index, which excludes food and energy inputs, rose 0.1% last month. It’s up 1.8% over the past year, down from April’s 2.0% rate.
In April, meanwhile, the government revised its original 0.3% increase in spending to a scant 0.1% gain. And spending in March was revised down to 0.1% increase from 0.2%.
In another negative sign, wages in the U.S. manufacturing sector fell by $4.5 billion in May, a reversal after having risen by $3.2 billion in April. The decline suggests hiring or worker hours may have been scaled back last month.
U.S. manufacturers, who’ve led the recovery since the recession ended in mid-2009, are facing stronger headwinds from the financial crisis in Europe and signs of slower economic growth in China. A raft of recent indicators suggest the domestic manufacturing sector is now slowing as well.
Jeffry Bartash is a reporter for MarketWatch in Washington.
