Ahead of the Bell: US consumer spending

US consumer spending likely rose 0.3 percent in May after flat April

Associated Press
US consumers ramp up May spending; largest gain since 2009
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In this photo taken Tuesday, June 9, 2015, shopper Julian Fojon-Losada, of Georgia, checks a coconut at a local fruit store in the Little Havana area of Miami. The Commerce Department releases its May report on consumer spending, which accounts for 70 percent of economic activity, on Thursday, June 25, 2015. (AP Photo/Alan Diaz)

WASHINGTON (AP) -- The Commerce Department releases its May report on consumer spending, which accounts for 70 percent of economic activity, at 8:30 a.m. Eastern Thursday.

HIGHER SPENDING: Economists expect that spending increased 0.3 percent last month, according to a survey by data firm FactSet. Incomes are expected to rise 0.5 percent in May, an indication that the savings rate may rise.

FEW SHOPPING SPREES: Until recently, cheaper gasoline and stronger job growth were not enough to unlock freer consumer spending. Americans have been increasingly saving a greater share of their paychecks, with the personal savings rate in April reaching 5.6 percent of after-tax incomes, the second highest level since December 2012. The higher savings are helping put personal finances on a more sustainable path, but they limit the ability of the overall economy — which relies mostly on consumer activity — to grow at a faster pace.

Yet there are signs that consumers are loosening the grip on their wallets.

Retail sales climbed 1.2 percent between May and April, led by auto dealers, clothiers and building materials stores, the Commerce Department reported earlier this month.

Spending at retailers is up 2.7 percent over the past 12 months. This includes annual gains of 8.2 percent in both the auto and restaurant categories.

The greater spending on building materials also corresponds with a surge in home-buying.

Sales of existing homes in May jumped 5.1 percent to an annual pace of 5.35 million, the National Association of Realtors said Monday. The real estate market is on pace for its strongest year since 2007, the last full year before the recession.

Many economists believe it was the severe winter weather that froze consumer spending earlier this year, before a bounce back this spring. The overall economy shrank in the first three months of the year at an annual rate of 0.2 percent. But analysts say revitalized consumer spending should lift growth back to a respectable annual rate of 2.5 percent or better in the April-June quarter.

Consumer spending may be aided by two major factors.

First of all, Americans are saving money at the pump. Gasoline costs have stabilized in recent weeks, but at the national average of $2.78 a gallon they remain about 90 cents below their average a year ago, according to the AAA's Daily Fuel Gauge Report. The savings should eventually flow into spending elsewhere, economists say.

Secondly, the economy has added 3.1 million jobs over the past year and the unemployment rate has fallen to 5.5 percent from 6.3 percent. The influx of new paychecks generally leads to additional spending by the newly employed.

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