June 27, 2013 / 12:38 PM / 5 years ago

Consumer spending rebounds, income jumps

WASHINGTON (Reuters) - Consumer spending rebounded and incomes recorded their largest increase in three months in May, adding to data that have suggested the economy has shifted to firmer ground.

A woman shops with her daughter at a Walmart Supercenter in Rogers, Arkansas June 6, 2013. REUTERS/Rick Wilking

The Commerce Department said on Thursday consumer spending increased 0.3 percent last month after a revised 0.3 percent drop in April. Consumer spending in April was previously reported to have declined 0.2 percent.

Last month’s spending increase was in line with economists’ expectations. When adjusted for inflation, consumer spending rose 0.2 percent last month after dipping 0.1 percent in April.

Consumer spending accounts for 70 percent of U.S. economic activity. Though the pace of spending has slowed from the 2.6 percent rate notched in the first three months of the year, consumers will likely continue to drive growth in the second quarter.

Recent data, including housing, regional factory activity, business spending plans and consumer confidence, have pointed to an economy that is regaining some speed after stumbling early in the second quarter.

That is broadly supportive of Federal Reserve’s view last week that the downside risks to the economy’s outlook have waned.

That theme held as other details of the Commerce Department report showed income grew 0.5 percent last month, the largest gain since February, after nudging up 0.1 percent in April. That reflects a steady pace of job gains.

There was also a bit of inflation in the economy last month, pointing to some pick-up in demand.

A price index for consumer spending inched up 0.1 percent in May after declining two straight months. A core reading that strips out food and energy costs also rose 0.1 percent after being flat in April.

Over the past 12 months, inflation rose 1 percent, still below the Fed’s 2 percent target. The index had increased only 0.7 percent in the period through April.

Core prices were up 1.1 percent from a year ago after rising by the same margin in April.

Reporting by Lucia Mutikani; Editing by Neil Stempleman

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