Consumer Spending Flat; Prices Steady

U.S. consumer spending was flat in May, coming in slightly weaker than expected, government data showed on Thursday, while a key gauge of inflation also held steady.

The Commerce Department (search) said personal income increased 0.2 percent, just beneath Wall Street (search) forecasts for a 0.3 percent gain. That followed a 0.6 percent advance in April and was the weakest reading since January.

A Reuters poll forecast consumer spending to advance 0.1 percent, after a 0.6 percent increase in April.

The price index for consumer expenditure, a measure of inflation favored by Federal Reserve Chairman Alan Greenspan (search), was unchanged after rising 0.4 percent in April.

Investors are on alert for higher prices after energy costs spiked and as the Fed meets to consider monetary policy. It is expected to announce another quarter-point rate hike to 3.25 percent when its gathering concludes later on Thursday.

Stripping out the volatile effect of food and energy prices, the core PCE index advanced 0.2 percent as expected after gaining 0.1 percent in April. It now stands 1.6 percent higher than May 2004.

Excluding inflation and taxes, real disposable income rose 0.1 percent or at the same pace as the previous month, the Commerce Department said.

Spending on durable goods, which includes costly items like cars, declined 1.8 percent after a 0.5 percent rise in April. Nondurable spending retreated 0.4 percent, reversing part of the 1.6 percent jump posted the previous month.