WASHINGTON (Reuters) – U.S. consumer spending rose less than expected in May as motor vehicles remained scarce while higher prices forced cutbacks on purchases of other goods, another sign that the rebound in economic growth early in the second quarter was losing steam.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, gained 0.2% last month, the Commerce Department said on Thursday. Data for April was revised down to show outlays increasing 0.6% instead of 0.9% as previously reported.
Economists polled by Reuters had forecast consumer spending would climb 0.4%. The report joined data on housing starts, building permits and manufacturing production in suggesting that the economy was struggling to gain altitude after gross domestic product dropped at an annualized 1.6% rate in the first quarter.
A record trade deficit largely accounted for the first decline in GDP since the short and sharp COVID-19 pandemic recession nearly two years ago. Though the trade gap narrowed in the first two months of the second quarter, slowing consumer spending is causing unsold goods to pile up. That could weigh on growth and heighten fears of a recession.
The Commerce Department on Wednesday sharply revised higher the pace of inventory accumulation in the January-March quarter, with stockpiles building up at general merchandise stores.
Slower consumption is likely to be welcomed by the Federal Reserve, which is seeking to tame inflation by aggressively tightening monetary policy. The U.S. central bank this month raised its policy rate by three-quarters of a percentage point, its biggest hike since 1994. The Fed has increased its benchmark overnight interest rate by 150 basis points since March.
Inflation maintained its upward trend in May. The personal consumption expenditures (PCE) price index rose 0.6% last month after gaining 0.2% in April.
In the 12 months through May, the PCE price index climbed 6.3% after advancing by the same margin in April.
Excluding the volatile food and energy components, the PCE price index rose 0.3% for the fourth straight month. The so-called core PCE price index gained 4.7% on a year-on-year basis in May after rising 4.9% in April.
Consumer spending continues to be supported by a tight labor market. Though job growth is slowing, demand for labor remains strong, with 11.4 million job openings at the end of April.
A separate report from the Labor Department on Thursday showed initial claims for state unemployment benefits decreased 2,000 to a seasonally adjusted 231,000 for the week ended June 25.
Economists had forecast 228,000 applications for the latest week. Claims have been stuck in a tight range since tumbling to more than a 53-year low of 166,000 in March, despite reports of job cuts in sectors like technology and housing.
(Reporting By Lucia Mutikani; Editing by Nick Zieminski)
