Robust US consumer spending data brighten growth outlook

(MENAFN- Arab News) WASHINGTON: US consumer spending recorded its largest increase in nearly six years in May on strong demand for automobiles and other big-ticket items further evidence that economic growth was accelerating in the second quarter.
While other data on Thursday showed a modest increase in first-time applications for unemployment benefits last week the underlying trend in jobless claims continued to suggest the labor market was tightening.
The strengthening economy suggests the Federal Reserve could raise interest rates this year even as inflation remains well below the US central bank's 2 percent target. Many economists expect a rate hike in September.
"This portends well for second-quarter growth and the broader momentum of economic activity in the second half of the year and keeps the prospect of a September rate hike squarely on the table" said Anthony Karydakis chief economic strategist at Miller Tabak in New York.
The Commerce Department said consumer spending rose 0.9 percent last month the biggest gain since August 2009 after a 0.1 percent rise in April.
May's sturdy increase in consumer spending which accounts for more than two-thirds of US economic activity suggested households were finally spending some of the windfall from lower gasoline prices and capped a month of solid economic reports.
It was the latest indication that growth was gaining momentum after gross domestic product shrank at a 0.2 percent annual rate in the first quarter as the economy battled bad weather port disruptions a strong dollar and spending cuts in the energy sector.
From employment to the housing market the economic data for May has been bullish. Even manufacturing which is struggling with the lingering effects of dollar strength and lower energy prices is starting to stabilize.
Though a report on Thursday showed some cooling in services sector activity in June businesses continued to view economic conditions as improving.
Economists had forecast consumer spending rising 0.7 percent last month.
US stocks traded higher with healthcare shares enjoying a broad rally after the US Supreme Court issued a ruling upholding tax subsidies crucial to President Barack Obama's signature 2010 healthcare law.
Prices for longer-dated US government debt fell while the dollar was little changed against a basket of currencies.
Last month spending on long-lasting manufactured goods such as automobiles jumped 2.2 percent and outlays on services like utilities rose 0.3 percent.
When adjusted for inflation consumer spending increased 0.6 percent the largest jump since last August after being unchanged in April.