US consumer spending stalls

US consumer spending stalled in May as purchases of autos flagged while confidence dropped to a six-month low in June, the latest signs of trouble for the economy. Although another report on Friday showed manufacturing activity in the Midwest picked up this month, factories saw a modest decline in new orders. The Commerce Department said consumer spending was unchanged in May, failing to rise for the first time since November, after nudging up 0.1 percent the prior month. Consumer spending accounts for more than two-thirds of US economic activity. “We’re seeing consumer spending come off the boil a bit over the last few months. That’s to be expected, given uncertainty across the board and the troubling headlines we’ve seen,” said Omer Esiner, chief analyst at Commonwealth Foreign Exchange in Washington. Spending could weaken further as uncertainty generated by the debt crisis in Europe and an unclear fiscal policy path at home force Americans to scale back on consumption. A separate report showed the Thomson Reuters/University of Michigan’s consumer sentiment index fell to 73.2 in June from 79.3 in May. While the outlook for the economy has darkened in recent months, it continues to expand modestly. A third report showed factory activity in the Midwest ticked up in June, with employment rising to its highest level since February. New orders, however, edged down. The Institute for Supply Management-Chicago business barometer rose to 52.9 this month from 52.7 in May. A reading above 50 indicates expansion in the regional economy. “The message from Chicago is that things are not spiraling down out of control,” said Dean Maki, chief economist at Barclays in New York. The reports had little impact on US financial markets, with investors focused on developments in Europe. Euro zone leaders agreed to allow a rescue fund to be used to stabilize the region’s banks, sending stocks on Wall Street rallying. US Treasury debt prices fell, while the dollar weakened against basket of currencies. Inflation pressures muted Consumer spending rose 0.1 percent after adjustment for inflation in May. The small rise caused economists to tweak their second-quarter growth forecasts. Economists at Goldman Sachs lowered their gross domestic product estimate to a 1.6 percent annual pace from 1.7 percent. The economy expanded at a tepid 1.9 percent rate in the first quarter. While weak gasoline prices contributed to holding down spending last month, they put downward pressure on inflation. A price index for personal spending fell 0.2 percent in May, the first decline in a year. The index was flat in April. In the 12 months through May, the PCE index was up 1.5 percent, the smallest increase since January last year. It increased 1.9 percent in April. A core measure that strips out food and energy costs advanced 0.1 percent last month after rising by the same margin in April. In the 12 months through May, the core PCE rose 1.8 percent, slowing from 2.0 percent the prior month. Last month, spending on long lasting goods, like autos, fell 0.4 percent after dipping 0.2 percent in April. Auto sales had been boosted by pent-up demand after last year’s earthquake and tsunami in Japan left showrooms bereft of popular models. Automakers reported unit sales declined in May. Spending on nondurable goods fell 0.8 percent, with services advancing 0.3 percent. Weak income growth as the economy struggles to generate enough jobs to cut into high unemployment is also curbing spending. Income rose 0.2 percent after a similar gain in April. The increase was in line with economists’ expectations. The amount of income available to households after accounting for taxes and inflation, rose 0.3 percent. That followed a 0.1 percent gain in April. With spending less than income, the saving rate rose to 3.9 percent from 3.7 percent the prior month.