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WASHINGTON : US consumer spending rose modestly in May despite a surge in personal incomes boosted by massive government spending to kick-start the economy out of recession, official data showed Friday.
The Commerce Department reported consumer spending rose for the first time in three months, by 0.3 percent in May, in line with the expectations of private economists.
But the savings rate shot up to a 15-year high as incomes spiked, suggesting consumers were being tight-fisted with their money in the face of mounting unemployment and home foreclosures.
The weak increase in personal spending -- which accounts for two-thirds of US economic activity -- followed a revised flat reading for April, a 0.3 percent decline in March and a 0.4 percent increase in February.
Adjusted for inflation, consumer spending increased for the first time since January by a weaker 0.2 percent.
"Consumer spending moved higher in May in real terms for the first time since January, but it remains very weak. For the second quarter overall, spending is likely to fall back about 0.5 percent after its 1.4 percent increase in the first quarter," said Nigel Gault, chief US economist at IHS Global Insight.
Joel Naroff of Naroff Economic Advisors said consumer spending had been essentially flat so far in the second quarter compared with the first quarter.
"That is not as strong as had been hoped given the stimulus bill. Indeed, it appears that so far the stimulus money has gone more to savings than spending," he said.
Personal incomes jumped 1.4 percent in May, the strongest gain in a year, mostly due to the 787-billion-dollar stimulus launched by President Barack Obama in February, the Commerce Department said.
The hefty rise in incomes far outpaced the 0.3 percent gain expected by analysts.
The government stimulus, which includes personal tax cuts and a one-time payment of 250 dollars to eligible recipients of social security and other benefits, offset a steep decline in private pay, the data showed.
Private wages and salaries plunged more than 16 percent, led by declines in the goods-producing industries and the manufacturing sector.
Disposable personal income -- income less personal taxes -- increased 1.6 percent May after a rise of 1.3 percent in April.
Excluding the special factors of the economic stimulus, disposable personal income increased 0.2 percent, slowing sharply from a 0.9 percent rise in April.
"Reduced wealth, high debt, tight credit, and a weakening labor market are all weighing on consumers. Wages and salaries were down in May, and have fallen in four out of five months this year. And higher gasoline prices are biting into spending power," Gault said.
The rate of personal savings -- personal income less personal outlays -- surged to 6.9 percent in May, a level last seen in December 1993. In April personal savings rose 5.6 percent.
Total personal savings reached 768.8 billion dollars in May, an all-time high since tracking of the data began in January 1959, the department said.
The personal spending price index rose 0.1 percent in May, the same rate as in April.
Excluding food and energy prices, the core inflation rate increased 0.1 percent in May, after a 0.3 percent rise.
"This is within the Fed's long-range forecast of 1.7 percent to 2.0 percent, suggesting no tendency towards either deflation or higher inflation, said Sal Guateri at BMO Capital Markets.
The Federal Reserve held its key interest rate unchanged at nearly zero Wednesday and said it expects "that inflation will remain subdued for some time."
Guateri noted that core inflation "should drift lower given that the economy is expected to operate with the most spare capacity in at least six decades."
- AFP/ms
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