US consumer spending rises in May

US consumers tightened the grip on their wallets in May after an April splurge but spending remained solid in the economy's main growth engine, official data showed Wednesday.

Personal spending rose 0.4 percent last month, the Commerce Department reported, which was stronger than expected.

Adding to the healthy picture on consumer spending, which accounts for two thirds of US economic activity, was an upwardly revised April increase of 1.1 percent, the largest month-over-month gain since August 2009.

"Consumers are leading economic growth, and the slowdown in spending growth that occurred over the winter appears to be over," said Scott Hoyt of Moody's Analytics.

The report also revealed slowly rising incomes. Personal income advanced 0.2 percent in May after increasing 0.5 percent in April, as did disposable personal income, the after-tax income available for spending.

Consumers saved a bit less in May, bringing the personal saving rate to 5.3 percent of disposable personal income.

Inflation remained muted and below the Federal Reserve's 2.0 percent year-over-year target. The personal consumption expenditures price index rose 0.2 percent in May. Stripping out volatile food and energy prices, core PCE prices were also up 0.2 percent on the month.

On 12-month basis, the Fed's preferred inflation measure, the PCE price index increased 0.9 percent and core PCE rose 1.6 percent.

Jim O'Sullivan, chief US economist at High Frequency Economics, noted that core inflation had accelerated a little from the 1.4 percent annual rate at the end of 2015, bringing the year-to-date pace to 2.0 percent.

"Meanwhile, the pick-up in consumption is a big plus for Q2 GDP growth," he said in a client note.