June 26 (Bloomberg) -- Consumer spending probably rose in May for the first time in three months as Americans gained confidence the recession was easing, economists said ahead of reports today. Purchases increased 0.3 percent after falling 0.1 percent in April, according to the median forecast of 76 economists surveyed by Bloomberg News. Other figures may show a gauge of consumer sentiment rose in June for the fourth straight month. Government efforts to restore the flow of credit and prop up incomes are making it possible for consumers to spend even as unemployment climbs to levels last seen in the 1980s. The loss of wealth caused by the worst housing slump in seven decades will prompt households to keep rebuilding savings, indicating an economic recovery will be slow to develop. “People are feeling a little more comfortable trying to resume a normal life and are starting to gradually increase spending,” said John Herrmann, president of Herrmann Forecasting in Summit, New Jersey. “The second-half outlook is definitely better. We’re beginning to pull out of the recession.” The Commerce Department’s spending report is due at 8:30 a.m. in Washington. Economists’ estimates in the Bloomberg survey ranged from no change to a 0.6 percent increase. The report is also projected to show incomes rose 0.3 percent in May, the second straight gain. The increase is likely to be much larger after accounting for one-time social security payments linked to the government’s stimulus plan, said Michael Feroli, an economist at JPMorgan Chase & Co. in New York, who forecast a 1.5 percent jump in incomes for last month. Sentiment Improves At 10 a.m., Reuters/University of Michigan figures may show the index of consumer sentiment rose to 69, the highest level in nine months, from 68.7 in May, according to the Bloomberg survey median. Estimates ranged from 67 to 70. The reading would match preliminary figures issued earlier this month. The Standard & Poor’s retailer supercomposite stock index has gained 42 percent since March 9 on growing optimism the worst of the spending slump is over. Consumer spending, which accounts for about 70 percent of the economy, rose in the first quarter at a 1.4 percent rate after falling in the last half of 2008 by the most since 1980, according to revised figures from Commerce yesterday. The economy shrank at a 5.5 percent annual rate from January to March, the revisions also showed. “Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth and tight credit,” Fed officials said in a statement this week. “The pace of economic contraction is slowing.” Projected Drop Purchases may drop at a 0.6 percent annual rate this quarter before growing again in the second half of the year, according to economists surveyed by Bloomberg this month. Job losses are one reason for the projected decline. The unemployment rate, which reached a 25-year high of 9.4 percent last month, probably rose to 9.6 percent in June, economists predicted ahead of the government’s monthly jobs report due next week. The rate may climb to 10 percent by year-end, according to the survey. Still companies like Hertz Global Holdings Inc. are among those seeing an improvement. The second-largest U.S. rental-car company yesterday forecast it will return to profit in the second quarter, after declines in business and consumer travel triggered two consecutive quarters of losses. “Our car rental demand in the U.S. and Europe has stabilized,” Chairman and Chief Executive Officer Mark Frissora said in a statement. Summer peak reservations are “better-than- anticipated.” Other retailers report Americans aren’t splurging. Kroger Co., the U.S. grocery chain that also operates Ralphs and Food 4 Less stores, said lower-priced store brands drew customers, helping lift first-quarter profit by 13 percent. “Shoppers remain cautious in this economy, and we do not anticipate that changing anytime soon,” Chief Executive Officer David Dillon said on a conference call with analysts this week.

Source