WASHINGTON – Consumer spending unexpectedly stagnated in May as employment prospects dimmed and rising inflation caused Americans to cut back.
Purchases were little changed, the weakest outcome since June 2010, after a revised 0.3 percent gain the prior month that was smaller than previously estimated, Commerce Department figures showed today in Washington. The median of economists surveyed by Bloomberg News called for a 0.1 percent gain. Prices excluding food and energy rose more than forecast.
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Walgreen Co. is among retailers that indicated 9.1 percent unemployment and higher gas and grocery bills have prompted shoppers to pare back purchases of less essential goods. Federal Reserve policy makers said the restraint on purchasing power may prove temporary as commodities prices start to decline, allowing the economy to pick up later this year.
“The quarter is going to be very slow,” said Christopher Low, the chief economist at FTN Financial in New York who correctly forecast household spending. “The biggest explanation for that is gas prices, so obviously the fact that oil has fallen quite a bit in the last couple of weeks is a really good thing. Relief just in time.”
Stock-index futures trimmed earlier gains following the report. The contract on the Standard & Poor’s 500 Index maturing in September rose 0.1 percent to 1,265.7 at 8:37 a.m. in New York. Treasury securities were little changed.
Survey Results
Estimates from 70 economists surveyed by Bloomberg ranged from declines of 0.3 percent to gains of 0.3 percent after a previously reported 0.4 percent gain the prior month.
The report showed incomes increased 0.3 percent for a second month. The gain was also less than forecast.
Wages and salaries increased 0.2 percent in May after climbing 0.4 percent a month earlier.
Because incomes rose as spending stagnated, the savings rate rose to 5 percent from 4.9 percent in April.
Monday’s report also showed inflation picked up from a year ago. The gauge tied to consumer spending patterns increased 2.5 percent from May 2010, following a 2.2 percent gain in the 12 months ended in April.
The Fed’s preferred price measure, the so-called core inflation reading that excludes food and fuel, rose 1.2 percent in May from a year earlier, compared with the 1.1 percent advance in April. It rose 0.3 percent in May from the prior month, the biggest one-month gain since October 2009.
Price-Adjusted Spending
Monday’s report also showed that spending adjusted for inflation figures, which are used to calculate gross domestic product, dropped 0.1 percent for a second month. It was the first back-to-back decline in two years.
Economic growth slowed in the first quarter after surging energy costs strained consumer finances. Labor market have begun to worsen this quarter, with payrolls growing by 54,000 workers in May, the fewest in eight months. Unemployment climbed to 9.1 percent, the highest this year, the Labor Department showed June 3.
“Persistent high unemployment, a weak housing market, high fuel prices and inflation all put pressure on consumers,” Greg Wasson, president and CEO of Walgreen, said on a June 21 earnings call. In response to the economic outlook, customers of the largest U.S. drugstore chain are shifting more spending to essential goods, he said.
Raising Prices
The Deerfield, Ill.-based company has been raising prices to combat more expensive input costs, including fuel, Chief Financial Officer Wade Miquelon said during the call.
In May, cars and light trucks sold at an 11.8 million annual rate, the slowest since September and down from a 13.1 million pace a month earlier, according to researcher Autodata Corp. Some of the drop in demand last month reflected a shortage of Japanese-made vehicles after the earthquake and tsunami in March disrupted supplies. With inventories running low, companies offered smaller discounts, deterring buyers.
Fed officials decided last week to keep the central bank’s balance sheet at a record to spur the slowing recovery after they complete a $600 billion bond purchase program by the end of this month.
“The economic recovery appears to be proceeding at a moderate pace, though somewhat more slowly than the committee had expected,” Fed Chairman Ben S. Bernanke said at a press conference after a meeting of the Federal Open Market Committee on June 22. He said the slowdown is caused in part by “factors that are likely to be temporary,” including more expensive commodities as well as supply chain disruptions associated with Japan’s natural disaster.
Consumer spending will grow an average 2.95 percent annual rate in the second half of 2011 after rising 2.1 percent this quarter, according to the median forecast of economists polled by Bloomberg News from June 1 to June 8.
